China’s stock market trading volume rises as other investment options dry up

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A Chinese bank employee counts yuan notes at a bank in Huaibei, east China’s Anhui Province, July 6, 2012.

Jie Zhao | Corbis News | Getty Images

BEIJING – Chinese investors are turning to the local stock market as once lucrative options like real estate and cryptocurrencies come under tougher government scrutiny.

Since the end of July, the daily trading volume of mainland China A-shares has remained above 1 trillion yuan ($ 154.56 billion) and reached a high for the year of 1.710 billion. yuan Wednesday, according to Wind Information.

This is about double the average daily trade volume of the past two years of 840 billion yuan, according to the data.

And on Wednesday, the trading volume of the Shanghai compound alone was 842.2 billion yuan, the highest since July 2015, China’s summer stock market collapsed amid heavy speculation.

Six years later, this summer has been marked by intense Chinese government regulation affecting the technology and education sectors. An underlying political call for “common prosperity” – moderate wealth for all, rather than a few – emerged as Beijing’s impetus for these new policies.

Ting Lu, Nomura’s chief economist in China, expects this new policy push to reduce wealth inequality to be felt most in real estate.

Soaring house prices over the past few decades have sparked significant speculation and created financial burdens for families trying to buy a home in an area with a good school or near work. Chinese authorities have stressed in recent years that “houses are made for living, not for speculation” and have restricted the ability of real estate developers to build new homes with high levels of debt.

“The markets may have become so focused on the regulatory storm that they are ignoring the elephant in the room: Beijing’s restrictions on the real estate sector, which makes up a quarter of China’s economy and half of the global sector. construction, “Lu said in a statement. 24 report.

“Markets need to be prepared for what could be a much worse-than-expected growth slowdown, more loan and bond defaults and potential stock market turmoil,” he said.

More short-term stock trading

In 2018, around 65% of Chinese private household assets were real estate, compared to 49% in the United States, according to Noah Research. This means that a large chunk of Chinese capital could go into stocks.

“Speculating on real estate is definitely irrelevant,” said Schelling Xie, senior analyst at Stansberry China, in Mandarin, according to a CNBC translation. Since Chinese authorities tightened the ban on cryptocurrency transactions this year, “where is this money going?”

He expects more money to enter the stock market, especially as uncertainty over economic growth has made investors expect monetary policy to only ease, allowing more capital to circulate.

The continental stock market, the second largest in the world, has grown significantly since the 2015 crash and has attracted a larger share of institutional investors. But the behavior of speculative retail investors remains in a stock market that many have compared to a casino.

During the last increase in trading volume, many investors switched from a short-term to a long-term approach, as it is “not that hard” to skyrocket some lesser-known stocks if a trader is “sufficiently sensitive”. Xie said.

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Increased investor interest has affected Chinese stock indices differently. This week, the Shanghai composite is on track for gains of over 2%, while the Shenzhen composite is little changed and the Star 50 is down over 5%.

“The recent high transaction volume is mainly due to sector rotation,” said Chaoping Zhu, Global Markets Strategist at JPMorgan Asset Management. “In the face of lingering market uncertainties, investors sold high-valued growth stocks and bought low-valued defensive sectors. “

“For example, low valuation blue chips in the banking, securities and real estate sectors are attracting large inflows,” he said, adding that quantitative trading had also increased recently.


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