What’s driving the Chinese stock markets?

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What’s driving the Chinese stock markets?

The Chinese stock markets have been volatile in the past week, as investors reacted to mixed economic data, policy signals, and global developments. Here are some of the key factors that influenced the market sentiment and performance.


Economic data

China released a series of economic data in the past week, showing both signs of strength and weakness in the world’s second-largest economy. On the positive side, China’s trade surplus widened to a record high of $75.4 billion in November, as exports surged 21.1% year-on-year, beating market expectations and reflecting strong global demand for Chinese goods amid the pandemic. China’s industrial profits also rose 28.2% year-on-year in October, the sixth consecutive month of growth and the fastest pace since 2011, indicating a robust recovery in the manufacturing sector.

However, China also faced some deflationary pressures, as both consumer and producer prices fell in November. The consumer price index (CPI) dropped 0.3% year-on-year, the first decline since 2009, mainly due to a sharp fall in pork prices after a surge last year. The producer price index (PPI) fell 2.7% year-on-year, the tenth straight month of contraction, reflecting weak demand and overcapacity in some industries. The falling prices raised concerns about the sustainability of China’s economic recovery and the potential need for more stimulus measures.



Policy signals

The Chinese authorities also sent some policy signals that affected the market mood. On the one hand, the central bank injected 950 billion yuan ($145 billion) into the banking system through its medium-term lending facility (MLF) on Monday, the largest amount since January, to maintain ample liquidity and support credit growth. The central bank also kept the MLF interest rate unchanged at 2.95%, suggesting that it is not in a hurry to tighten monetary policy despite the economic rebound.

On the other hand, the regulators also announced some measures to curb financial risks and speculation in the stock and bond markets. The China Securities Regulatory Commission (CSRC) said on Friday that it would crack down on illegal activities such as market manipulation, insider trading, and financial fraud, and enhance supervision over the initial public offering (IPO) process and delisting mechanism. The CSRC also warned investors to be cautious of the risks of investing in overseas-listed Chinese companies, amid rising tensions with the US over audit and disclosure rules. Meanwhile, the National Development and Reform Commission (NDRC) said on Wednesday that it would tighten the approval of corporate bond issuance, especially for real estate developers, to prevent excessive leverage and debt defaults.



Global developments

The Chinese stock markets also followed the global trends and reacted to the developments in the US and Europe. The markets were boosted by the positive news of the coronavirus vaccine development and distribution, as well as the prospects of a new fiscal stimulus package in the US. The markets also welcomed the nomination of Janet Yellen as the US Treasury Secretary, as she is seen as a proponent of more government spending and a supporter of multilateralism.

However, the markets also faced some headwinds from the rising coronavirus cases and lockdown measures in the US and Europe, as well as the uncertainties over the US-China relations under the incoming Biden administration. The markets were also rattled by the reports of a cyberattack on several US government agencies and companies, allegedly by Russian hackers, which raised security and geopolitical concerns.



Market performance

The Shanghai Composite Index, the benchmark index of the Chinese mainland stock market, ended the week at 3,394.90 points, down 0.16% from the previous week. The Shenzhen Component Index, which tracks the performance of stocks listed on the Shenzhen Stock Exchange, closed at 13,722.40 points, down 0.64% from the previous week. The ChiNext Index, which reflects the performance of China’s Nasdaq-style board of growth enterprises, finished at 2,682.05 points, down 1.12% from the previous week.

The Hang Seng Index, the main index of the Hong Kong stock market, ended the week at 26,498.60 points, up 0.36% from the previous week. The Hang Seng China Enterprises Index, which tracks the performance of Chinese companies listed in Hong Kong, closed at 10,462.80 points, up 0.49% from the previous week.

The factors leading the Chinese stock markets in the past week were diverse and complex, reflecting the challenges and opportunities facing the Chinese economy and the global environment. Investors should be prepared for more volatility and uncertainty in the coming weeks, as the markets digest the new information and adjust their expectations.



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