The stock market game has become tricky just as betting and gambling in a casino. Even the pharaohs in this war, such as Warren Buffett, are experiencing challenges due to uncertainties. We see the billionaire selling his airline stocks because of the pandemic situation, and day traders are mocking him terming him as old in this game.
Since the pandemic hit the earth, the stock market has been fluctuating rapidly. Investors are not 100% sure whether to invest or not. Stock markets in different countries are recording fluctuating prices every 24 hours.
We start with the US stock market, which recorded an increase of over 3% last week due to various factors such as stimulus. Moreover, the optimism towards coronavirus vaccine created a different conscious image of the market, thereby persuading investors to trade. Analysts see a similar case in the Chinese stock market, but its case is quite a puzzle to solve as there may be a drowning case later on.
The Chinese Stock Market
Predictions in the market are that the stock market rally could grow more parabolic. Mathematically, parabola means a plane curve that is U-shaped. In the context of the stock market, it is a move whereby we witness the rate of the market gain increasing. Besides, a parabolic stock is the one in which we see a rapid increase in its price. However, Goldman Sachs says that the rise in prices in the stock market will not go for long. The rally pushed the prices of equity to almost six years high.
The CSI 300 Index
This is a capitalization-weighted market index modified to duplicate the functioning of the top 300 stocks that traders trade on the Shanghai Stock Exchange. Its sub-indices are CSI 100 and CSI 200. The China Securities Index Company record the index. It is a blue-chip index for the Mainland CSE.
The index fell to a year low in March when the stock markets globally were all falling. However, recently it surged 35%. The Goldman Sachs forecasts it will increase by over 13% higher within the next quarter (October) before plunging in the next 270 days (4600). The index may reach 5370 by those 3 months. Yesterday (8th July 2020), the stock market index closed at 4774.
Factors Pushing the Chinese Stock Exchange High
The recovery of the economy might be one of the factors that boosted the stock exchange rally. That is, businesses going back to normal and earnings improving among other macroeconomic and microeconomic factors.
Laura Wang and Jonathan Garner, Morgan Stanley strategists, wrote:
“A Chinese equity bull market is building with increasing volumes amid improved earnings visibility and liquidity. A-shares are benefiting from strong fund launches and soaring retail investor account openings in the context of regulatory support and an ongoing market reform push.”
The China Securities Journal also boosted the market after an editorial stating the anticipation of a bullish market. This might have created a positive image for the stock exchange since the journal was encouraging traders to purchase local equities.
- Pressure On The US Stock Market as Pandemic Continues to Roar
- The Stock Market May Continue Fluctuating
China’s Stock Market Anticipated Bubble
Despite the euphoria of today’s soaring prices, the Chinese exchange should anticipate a price drop later. There are various reasons why the upsurge or rally will not last long, and we may see a stock market bubble like 5 years ago.
The crash might come after the market boom. Mark Williams, chief economist for Asia at Capital Economics, advises traders to look back in history. Some time ago, just as today, policymakers were backing on the media to boost the market higher, creating a positive perception of the market. The results of this kind of judgment end up being tragic.
Stephen Innes, the chief global markets strategist at Axi Corp, says investors are purchasing what the media are offering.
The 2015 Chinese Stock Market Bubble
The media at this time encouraged local traders to drive the market higher. Indeed, it worked for some time, and even valuations targeted a 7 year high. The end of the rally story is quite sad.
Chinese Stock Market Ought to Be Careful
Investors have borrowed over 1 trillion yuan to purchase stock. Furthermore, records show zero new cases of coronavirus in Beijing. The manufacturing activities and retail offerings are healing, meaning that the economy is also recovering. Despite all these positive things happening in China, if the rally euphoria overlaps the basics, the whole market is bound to collapse later.