Stock market Illustration: VCG
The Chinese mainland markets extended their rally from 2020 into the first half of this year, though by a milder range, amid a robust economic rebound that injected momentum into global capital markets. Experts were optimistic that the markets will surge even by a greater extent in the second half of this year.
They also predicted that China’s stock market valuation might surpass that of the US stock markets one day, after the two countries’ economic gap is shortened further.
The prediction comes at a time when markets in both countries have experienced a rally in 2021. The US wrapped up the first half of 2021 at record highs, with the three major US indexes all up by double-digit percentages. The Nasdaq market was up more than 12 percent during the six months, while the S&P 500 rose by 14.4 percent compared with the end of last year.
The mainland market’s rally was more moderate, in comparison, although it also extended a rise from last year into 2021. By Friday, the benchmark Shanghai Composite Index stood at 3,519 points, up 3.4 percent compared with the beginning of the year. The Shenzhen Component Index rose by 4.78 percent to arrive at 14,670 points.
Li Daxiao, chief economist at Shenzhen-based Yingda Securities, said that because of the US Federal Reserve’s unprecedented loose monetary policies and active fiscal policies, the US markets have been buoyed up to a greater extent than most global stock markets, including the A-share markets. However, the gap between A-share and US markets might reduce in the upcoming six months.
“The continuing pandemic progress, the surging performance of mainland listed companies, as well as the increasing inflow of capital into mainland markets will all support a stock rally that can last longer,” Li told the Global Times.
He also said that the A-share markets should surge by a greater range in the second half of 2021 compared with the first one, considering that the markets already underwent relatively sharp corrections around May this year.
Experts said that with China’s robust economic rebound, possibilities exist that China’s market cap will beat that the US markets at some point in the future.
Currently, mainland markets’ market capitalization reached about 86 trillion yuan ($13.3 trillion) by the end of June, compared with about $45 trillion in the US markets.
“Now there are hurdles to that goal such as the level of internationalization and the GDP gap between the two countries, but I would say it might happen someday,” Li said.
He also noted that the skyrocketing US stock markets have been generated under abnormal monetary policies, and risks might burst out once the Fed retrieved such policies.
“It might generate economic sequela that can take more than 10 years to dissolve, but the risks on the stock markets won’t necessarily burst out within a brief period,” he said.
China has already overtaken the US in some economic indicators. For example, China outpaced the US to become the largest recipient of FDI in 2020, data released by the United Nations Conference on Trade and Development (UNCTAD) showed.