Aug. 20, 2024 (InvestinChina.asia)— Huatai Securities has released a report indicating that China’s stock market needs positive signals of strong economic performance to break out of its current low trading volumes, with key clues likely to emerge in the third quarter. The report also examines historical periods of low trading volumes and the factors that led to recovery.
Recent Low Trading Volumes
Recently, trading volumes in China’s stock market have been unusually low. Last week, the average daily trading volume in the A-share market was just 520 billion yuan, with volumes falling below 500 billion yuan on August 13 and 14. From a funding perspective, the low trading volumes indicate increased caution among buyers and sellers.
Historical Context
Historically, there have been three periods of low trading volumes in China’s stock market, occurring in 2004-2005, 2011-2014, and 2018-2019. Each time, the market rebounded following the resolution of the primary issues driving the downturn.
2004-2005
Issues with the A-share market’s structure became apparent, and the introduction of share reform marked a turning point. On April 29, 2005, the China Securities Regulatory Commission (CSRC) issued a notice initiating pilot reforms to address the problem of non-tradable shares, signaling the government’s commitment to resolving a major institutional challenge facing the market.
2011-2014
Both internal economic momentum and policy stimulus were weak, leading to concerns about the strength of economic recovery. It wasn’t until July 2014 that increased measures to stabilize growth became a catalyst for breaking out of the low trading volumes. Starting in 2011, monetary tightening took effect, and GDP growth slowed, increasing investor concerns about economic stability. Despite a gradual easing of monetary policy and sustained pro-growth policies, market confidence remained low due to:
- The National People’s Congress setting a GDP growth target of 7.5%, which was lower than market expectations.
- Unchanged regulatory direction for the property market.
After the policy bottom was established in September 2012, positive economic data helped stabilize and boost the market. However, the market failed to maintain its upward trend in March 2013, entering a period of volatility. The subsequent bull market in 2014-2015 was primarily driven by growing expectations of reforms and the influx of new capital.
2018-2019
Overseas risks, primarily trade tensions and U.S. stock market corrections, were the main drivers of negative market sentiment. As geopolitical risks eased, trading volumes and prices rose.
2023-2024
Currently, weak domestic economic fundamentals are the primary constraint on the market, with overseas risks playing a secondary role. The demand for evidence of economic recovery is stronger than in previous periods, with a critical observation point expected in the third quarter of 2024.
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