Editor's note: Early last week, both the Hong Kong and A-share markets performed strongly. In particular, A-shares successfully broke through the 3,800-point mark on August 22, leading to increased market activity. Although A-shares experienced some adjustments during the week, overall market sentiment remained high. What are the core driving forces behind this round of market performance?
【Anchor】Hello everyone, welcome to DDN Business Insider. I am Yunfei Zhang. Early last week, both the Hong Kong and A-share markets performed strongly. In particular, A-shares successfully broke through the 3,800-point mark on August 22, leading to increased market activity. Although A-shares experienced some adjustments during the week, overall market sentiment remained high. What are the core driving forces behind this round of market performance? To discuss this, we have invited Li Daxiao, former chief economist of a brokerage firm, and Guo Hanbing, postdoctoral researcher at the Chinese Academy of Social Sciences, to provide their insights. Welcome!
【Anchor】The Hong Kong and A-share markets have shown continuous strong performance this year, with A-shares nearing the next integer level, demonstrating strong upward momentum. Mr. Li, what do you believe are the main factors supporting this market trend?
【Li】The essence of supporting this market trend is our proactive stock market policies, including two innovative monetary policy instruments (the inclusive lending facility and carbon reduction facility) from the central bank. We are also actively guiding medium- and long-term funds into the market, often referred to as "long money." More importantly, when we started this phase, the overall market valuation was still attractive. Currently, we are at a stage of relatively low bond yields, with bank interest rates also at historic lows—one-year rates have already dropped below 1%. In this backdrop of asset scarcity and with long-term funds entering the market, we have resolved institutional barriers to long-term capital inflows. For instance, we have changed the investment duration for insurance funds from one year to three to five years, and we are actively promoting the entry of long-term capital. This long-term, "long money" characteristic is a critical logic supporting this market trend. Under this larger context, foreign capital has also shifted from short to long positions, especially after breaking through the 3,800-point mark, which has led to a stronger market overall. This is also connected to expectations of interest rate cuts by the Federal Reserve; as the dollar weakens and the yuan strengthens, the attractiveness of yuan-denominated assets increases, resulting from the combined efforts of domestic and foreign capital.
【Anchor】Correspondingly, in July this year, household savings decreased significantly by 1.1 trillion yuan, representing a year-on-year decline of 780 billion yuan. Meanwhile, deposits in non-bank financial institutions surged by 2.14 trillion yuan, an increase of 1.39 trillion yuan year-on-year, setting a record high for the same period since 2015. Data from the Shanghai Stock Exchange show that with deposits moving and non-bank deposits increasing, the number of new stock accounts has surged. Mr. Li, how do you view the current situation where "bullish enthusiasm" has been ignited, and ordinary investors are "rushing into the market"? Does this resemble the situations in the bull markets of 2007 and 2015?
【Li】In July, there was indeed a significant drop in household savings, which is related to the movement of deposits following the market surge. August may see an even larger proportion of this trend continue. In terms of new accounts, July saw a month-on-month increase of nearly 20%, but this is still far from the levels observed in October 2024. Overall, this trend of moving savings and opening new accounts is still in its preliminary stages. There are essential differences between this situation and the bull markets of 2007 and 2015.
【Anchor】OK, what are the differences?
【Li】The 2007 bull market was driven by the non-tradable share reform, and the 2015 bubble was fueled by off-exchange margin financing. This time, the situation feels more genuine, with real money coming into the market, which distinguishes it fundamentally from the previous two rounds. Moreover, for the first time in history, the dividend yield of blue-chip stocks in China has surpassed the yield of long-term bonds. This situation highlights the investment value of the stock market, which was not present in the previous two rounds. In those earlier cycles, after the price increases, a decline was inevitable because stocks became too expensive. This time, due to asset scarcity and the emergence of stock-bond differentials, this bull market is different from the previous two. Of course, the policy support is similar, but the foundations and environment are entirely different.
【Anchor】Yes, Ms. Guo, how do you see the current A-share market compared to past bull markets?
【Guo】Now, with household savings decreasing by 1.1 trillion yuan in a single month and nearly 2 million new stock accounts opened, bullish enthusiasm has indeed emerged. However, this enthusiasm is completely different from that of 2007 and 2015. Back in 2015, the scale of off-exchange financing exceeded 1.7 trillion yuan, leading to a very chaotic leverage situation. Although the current margin financing balance is still relatively high, over 99% of it is compliant on-exchange financing, with the margin financing leverage controlled at around 1.25 times, which significantly lowers the risk. Furthermore, this market is structural; for instance, the hard technology sector is leading, while consumer finance has not participated much, indicating a more rational approach compared to the past when the entire market surged wildly.
【Anchor】On the other hand, last week, both the Hong Kong and A-share markets experienced a pullback after reaching new highs. There is a notion that when ordinary investors increasingly talk about the stock market, it may signal a market peak. What is your judgment on the future trend of this strong market? How do you see the time frame and extent of its continuation?
【Guo】Regarding the time frame and extent, the high-level pullback and the increasing discussions among ordinary investors indicate that the market is transitioning from a frozen state to a warming one. This is an objective fact. However, I don't think we can conclude that this means we are at a peak. The valuations of blue-chip stocks remain at reasonable levels, without significant bubbles. In terms of both time and extent, I believe there is potential for both. The level, span, and stability of this market are likely to be more solid than in previous cycles.
【Anchor】Lastly, what potential risks should we be aware of at this time?
【Li】The potential risks include the possibility that certain stocks may be overvalued—what we call the five categories of overvalued stocks. This differs from previous cycles, where the overvaluation was more generalized; this time, it is more localized. Additionally, the leverage has exceeded 2.14 trillion yuan, indicating a gradual increase in leverage levels. Furthermore, as of August 26, 2025, the total market capitalization is 114 trillion yuan, which is historically higher than in previous cycles. When the overall market capitalization is large, it can create pressure and risk. This means that we are seeing a market peak under historically high market capitalization, which is different from the smaller market caps seen in 2007 and 2015.
【Anchor】Okay, Ms. Guo, what are your thoughts?
【Guo】When considering potential risks, one major concern is the overheating of popular sectors, such as semiconductors and AI computing, where the financing concentration has reached about 7%. If it goes any higher, it may hit warning levels. If the third-quarter earnings reports do not meet expectations, a pullback could easily occur. The second risk is related to the pace of policy implementation. For example, in the photovoltaic industry, if the anti-involution policies are slow to integrate, both upstream and downstream sectors may be affected.
【Anchor】In the context of the Federal Reserve's interest rate cuts, some analysts have pointed out that the People's Bank of China may implement more decisive easing measures, such as rate cuts and reserve requirement ratio reductions, to stabilize economic growth. What specific measures do you anticipate the central bank will take to resonate positively with the A-share market?
【Guo】After the Fed cuts rates, the domestic central bank will have more room to maneuver. They might lower the reserve requirement ratio by 50 basis points and guide the Loan Prime Rate (LPR) down by 15 basis points, reducing financing costs for enterprises. They may also restart the Pledged Supplementary Lending (PSL) program, with around 500 billion yuan in scale to support affordable housing. For the stock market, there could be an expansion of stock pledge loans to about 300 billion yuan, encouraging companies to buy back shares. This would create a favorable direction: first, liquidity would loosen; then, corporate profits would improve, leading to a rising stock market and a wealth effect that boosts consumption, resulting in a virtuous cycle. Historically, after a reserve requirement cut, the average gain for all A-shares over three months is around 8%, so this pattern is reliable and can provide guidance for the current market situation.
【Anchor】Mr. Li, what are your views?
【Li】I believe that this time, the direction of the central bank is aligned with that of the Fed. Of course, we maintain our autonomy and independence, but overall, the direction of macroeconomic regulation is consistent. It is quite rare for two central banks to be on the same page as this. I think the Federal Reserve's interest rate cuts will reinforce our macroeconomic adjustments, making the effects more pronounced. The central bank will continue to adopt a supportive monetary policy, which remains unwavering. We will maintain a moderately loose monetary policy to support economic development and may use a combination of various policy tools rather than relying on a single tool. From this perspective, I believe it will provide significant support for economic growth, which in turn is a clear support for the stock market.
【Anchor】OK, thank you. That's all for this episode. Remember to follow us on YouTube or download our APP. I'm Yunfei Zhang, thanks for watching, and see you next time.
Anchor: Laura Cheung | Edited: Kelly Yang, Laura Cheung, Rachel Liu | Translate: Kato Ip | Proofread: Chris Liu
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