Trade optimism boosts the stock market? Not entirely

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04:03

Chinese stocks jumped on Monday. Expert believes the trade optimism is not the only catalyst for the rally.

The benchmark Shanghai Composite was running with the bulls. The index rose by 5.6 percent to 2961.28 yesterday. The reading also marked the highest level since June 2018 with trading volume reaching the highest level in three years.

The rally also brought gains this year to 20 percent, moving into bull market territory. Almost all of the more than 3,500 stocks traded in Shanghai and Shenzhen stock markets have risen since the Chinese New year.

Though the rally was seen as the result of China-U.S. talk as the A-share markets opened shortly after U.S. President Trump said that the U.S. will postpone the tariff increase which was set to begin on March 1, Hong Hao, chief China strategist of BOCOM International Holdings believes that the bull market can't only be attributed to the talks, as the expectations “have been priced into the market.”

Pointing to the Hong Kong market, which was selling, Hong said "there is something unique happening in the A share market.”

Hong Hao, chief China strategist of BOCOM International Holdings. /CGTN Screenshot

Instead of praising the talk, Hong thinks all the policies that government has been released last year justified the rally market and paved the way for a short-term boost in mainland stocks.

“In the month of January, we have seen 4.64 trillion yuan of total social financing, a sign of a very decisive policy easing,” said Hong.

In 2018, the Chinese government introduced a number of policies to support the economy, including the targeted medium-term lending facility which aims to provide long-term, lower-cost funding for financial institutions supporting small and private businesses, and draft rules for the science and technology innovation board which aims at attracting the listing of more small high-tech companies.

The central bank has also cut the reserve requirement ratio (RRR) twice in January to release more money into the financial system.

04:00

Chief strategist from Cinda Securities Chen Jiahe also believes that there are several reasons behind the rally including Chinese President Xi's s talk about the capital market, the low valuation of property market, among others.

Chen Jiahe, chief strategist of Cinda Securities. /CGTN Screenshot

While the stock is still running with the bulls, experts suggest that people should hold onto their stocks and be prepared.

“Don't predict, prepare,” said Chen.