Chinese Investors Rush Into Stock Market for Fearing Missing Out on Epic Rally

TMTPOST--Animal spirits have reignited China's stock market as investors flock to equities, spurred by Beijing's policy largesse and driven by a fear of missing out on what some are calling an unprecedented rally.

Brokerages are buzzing with retail clients, and a surge in orders is overwhelming trading platforms as investors shift their capital from bonds and deposits to stocks. This shift has resulted in a significant rise in stock turnover and yields.

"Deposit rates are too low, and real estate is no longer a safe bet," said Darren Wang, a 30-year-old office worker who has begun purchasing stocks with borrowed money. "There's no other way to get rich than by doubling down on stocks. The market frenzy this time could be unprecedented."

After enduring three years of market gloom, during which economic activity struggled to rebound from the pandemic and a property sector debt crisis rippled through the market, investors have suddenly turned euphoric.

Even though China's A-shares were closed for the National Day golden week holiday, international markets linked to Chinese assets saw significant gains, signaling global investor confidence. Foreign capital, once bearish on China, is now reversing its stance, rushing to buy in anticipation of further growth.

During the holiday, Chinese stocks listed in international markets saw strong gains. The Nasdaq Golden Dragon China Index, which tracks Chinese firms listed in the U.S., surged by 11.35% by October 4, far outpacing major U.S. indices like the Dow and S&P 500.

Foreign investors have scrambled to buy Chinese assets, with major players like J.P. Morgan purchasing billions in Chinese stocks such as China Pacific Insurance, BYD, and Hong Kong Exchange stocks just before the holiday. Wall Street firms, including BlackRock and Citigroup, have upgraded their ratings on Chinese equities, predicting continued bullish momentum.

At the end of September, the blue-chip CSI300 Index surged 16%, marking its best performance since 1998. This came in the wake of a government stimulus package that included interest rate cuts and a $114 billion war chest aimed at boosting share prices.

While many of the announced policies are yet to be fully implemented, and it remains uncertain whether they will resolve deep-rooted issues such as the prolonged property crisis and weak consumption, investors are following the flow of capital.

"Life has been tough for so long; it's finally time to make some money," said Wen Hao, a tech startup manager in Hangzhou, who bought energy stocks before the week-long National Holiday. He compared the current rally to the 2015 bull run when Shanghai's stock index doubled in just six months, citing large sums of "state-backed money flowing into the market."

Before the holiday, the central bank unveiled a 500 billion yuan ($71.3 billion) swap program to fund stock purchases by brokers, funds, and insurers. It also introduced a 300 billion yuan re-lending facility to finance share buybacks by listed companies, both of which are expected to expand.

"The 2014-15 bull run was fueled by illegal margin financing. This time, the central bank is providing the leverage," noted a hedge fund manager who requested anonymity. "Investors are rushing into stocks because of state support," the manager added, emphasizing that the rally seems driven more by liquidity and market sentiment than by economic fundamentals or corporate performance.

In an editorial, the China Securities Journal echoed the market optimism, saying that reviving stocks and boosting investor confidence would aid the nation's economic recovery by breaking the cycle of restrained investment and negative sentiment.

Brokerages across the country are now bustling with investors eager to open accounts or secure margin financing. Clearing services were even operational over the weekend to accommodate the surge in demand for new accounts.

During the holiday, China's securities firms saw an unprecedented surge in new account openings. Reports from state media indicated that brokerages were busier than ever, with some seeing a 266.66% increase in the opening of new accounts compared to the previous week. Call centers operated around the clock, handling up to six times the usual number of inquiries.

Guotai Junan Securities, in response to overwhelming account-opening requests, arranged additional staffing at branches to handle the influx during the holiday, as well as during off-hours, according to an internal notice.

Similarly, Zion Zhong, a customer manager at Citic Securities' Suzhou branch, reported a sudden surge in margin financing business. Another Citic manager in Shanghai also described a significant uptick in activity, noting, "We're much busier than before, with more people opening stock accounts and inquiring about margin financing."

This shift is also evident in China's bond market, where 30-year treasury bond futures hit a two-month low on September 30 after a 3.6% drop, the worst in its history. "An epic money migration is underway—trillions are moving from bond funds, wealth management, and other fixed-income products into equities," wrote Zhao Jian, head of Atlantis Finance Research Institute, in a client note.

After three years of a bear market, Zhao predicts the bull run will continue with few corrections, as many short-term investors are eager to recover their losses. However, he also warns that many may end up losing out when the market takes turns.

Veteran trader Wu Jie, 48, expressed his confusion over the rapid market shift. "The economy is still in the duldrums," said Wu, who is currently holding a light stock position. "But looking at the trading volume, the rally seems likely to continue. I have cash ready and am waiting for a significant correction to jump in."