Liquidity and confidence boosting stocks

Rich Zhu
GEM index hits a record high since December in 2016 as over 537 billion yuan of credit support is provided by financial institutions by February 14 to fight the epidemic.
Rich Zhu

Chinese stocks surged by over 2 percent on Monday with increased trade volume, thanks to more liquidity, a change in refinancing policies and regained confidence.

At the close, the benchmark Shanghai Composite Index was up 2.28 percent to 2,983.62, while the smaller Shenzhen Component Index increased 2.98 percent to 11,241.50 points. 

Trading volume on the two bourses totaled 937.2 billion yuan (US$133.9 billion), 15 percent higher than in the previous trading day. 

The GEM (China Growth Enterprise Market) index jumped 3.72 percent to hit 2,146.18 points, a record high since December in 2016. On the SSE STAR Market, 84 of the total 86 shares gained. 

“More long-term funds are expected to start a bull market, as the 3,000 points just the beginning,” Li Daxiao, chief economist at Yingda Securities Co, said in a note. 

By February 14, over 537 billion yuan in credit support had been provided by financial institutions to fight the epidemic, according to the central bank.

More liquidity and related policies, such as tax cuts, are expected. More long-term funds, including retirement funds similar to 401K funds, will also be poured into the market, Li added.

Meanwhile, the stock market regulator announced at the weekend a relaxation in refinancing regulations in the market.

This is aimed at boosting mergers and acquisitions and private placements, especially in the science and technology sectors. It brings more liquidity, capital and attention in the GEM and STAR markets with many technology firms, analysts said.

Agriculture, logistics and national defense shares led Monday’s surge. 

Heilongjiang Agriculture Co surged by the 10 percent daily cap to 13.2 yuan. SF Holding Co, China’s top delivery firm, surged 9.14 percent to close at 46.35 yuan, a record high since June in 2018.

Northbound Funds — overseas capital flowing into the mainland markets via Stock Connect schemes — generated a net inflow of 5.36 billion yuan on Monday.

The funds represent international investors’ attitudes toward domestic A shares. The net inflow shows market confidence returning during the epidemic, with good news such as increased liquidity and a resumption in production capacity.

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