From ecstasy to agony on China's stock markets

In mid-June China’s stock markets rallied to seven-year highs but by the opening days of July it had all come crashing down.

If this spring showed markets anything, it’s that records are made to be broken. In April and May, A-share and H-shares rallied to new seven-year highs.

Then they nose-dived, with the Shanghai Stock Exchange Composite Index plunging 28.2% from mid-June up to July 9. The three-week plummet has wiped out $2.36 trillion in market value, according to Bloomberg.

However, despite the current sell-off, China is still one of the best performing markets this year. The rally earlier this year came after the CSRC announced plans in March that mainland mutual funds would be allowed to participate in the recently launched Hong Kong-Shanghai Stock Connect programme.

Up until June 12, the Shanghai Stock Exchange Composite Index rose 59.7%, jumping 17.3% in April alone. This sent Chinese retail investors to the market in droves. April’s average daily turnover totalled Rmb1.43 trillion ($225.6 billion). Average daily turnover totalled Rmb910 billion for the first four months of 2015, more than three times the turnover in 2014, according to BOC International research. While April’s daily turnover is not sustainable for the entire year, BOCI forecasts full-year average daily turnover will total Rmb834 billion.


This turnover explosion led to a record number of brokerage account openings. The number of new account openings reached 13.6 million in April, exceeding the previous record of 5.1 million in June 2007, BOCI notes. According to the CSRC, 90% of the market trading was contributed by retail investors.


The Chinese mutual fund industry has also experienced exponential growth. It set a new one month AUM record in May, accumulating $193 billion in assets that month, Z-Ben Advisors said citing Asset Management Association of China (AMAC) figures.

This has contributed to a surge in China ECM activity year-to-date, with volume reaching $116.5 billion via 490 deals so far this year, the highest volume and activity on record, Dealogic notes.

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