China’s stock rally is set to get a boost from small investors, stoking hopes that their massive savings will fuel the next leg of the market’s blistering advance.
The benchmark CSI 300 Index has been on a tear, rising 10% in August to be one of the world’s best-performing equity gauges amid a liquidity-driven surge. While hedge funds have been active in the market, analysts say the nation’s mom-and-pop investors are still in the early stages of what could be a major rotation into stocks and equity funds.
China’s household deposits fell 0.7% from a record high in June to 160.9 trillion yuan (US$23 trillion) in July, suggesting investors are putting their money to work. JPMorgan Chase & Co predicts around US$350 billion of additional savings could flow into the equity market between July 2025 and the end of next year, propelling share prices more than 20% higher.
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“Cash makes bull markets, and deposits shifting to stocks is going to be an important driver of this rally,” said Xu Dawei, a fund manager at Jintong Private Fund Management in Beijing. “It’s already begun and there’s no turning back.”
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The glut of savings is one factor pushing Wall Street banks to hike price targets for China’s major stock gauges and fueling hopes that China’s rally — which has so far defied lacklustre earnings and persistent questions about the health of the economy — has further to go.
Goldman Sachs Group Inc. strategists pointed to excess household savings when upgrading their target for the CSI 300, with the bank now predicting a roughly 10% rise over the next 12 months. HSBC Holdings Plc cited the savings pool as potentially a “very positive catalyst” when lifting its targets for the country’s two biggest indexes.
Missing Out
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Darwin Mao, a 28-year-old tech employee in Beijing, has been eying a shift to the stock market since last September.
Back then, a stimulus blitz by China’s central bank sent stocks zooming higher, bringing an end to a years-long selloff fueled by fears about the economy. The CSI 300 jumped around 25% in a week, leading to a feeding frenzy among local investors. It wasn’t until this August that the index beat the highs set back then.
“Stocks rallied so fast that I didn’t have time to get in,” said Mao, adding that this time he was keen not to miss out. “I took the opportunity to invest some of my spare money at the end of July and I’ve been increasing my holdings. I believe the rally will extend until the end of this year.”
The CSI 300 has risen in nine of the past 10 weeks, taking its gain from this year’s low in early April to 25%. Investors have expressed confidence that authorities will keep sentiment supported before a Sept. 3 military parade, which is set to mark the 80th anniversary of the end of World War II. China has a history of propping up its stock market ahead of major political events to project an image of stability.
Some strategists, including those at Morgan Stanley, have flagged signs the market is overheating, with some technical indicators flashing overbought signals. In one example, shares of Cambricon Technologies Corp more than doubled in August, prompting the AI chip designer to warn investors that its stock price may no longer reflect fundamentals. That sent the stock tumbling on Friday.
So far, the shift from savings to stocks is a trickle: The roughly 2.1 trillion yuan jump in non-financial deposits — a proxy for liquidity in stocks, funds and trust accounts — in July was just the highest since February, and not much above the seasonal average over the past decade.
But analysts see the shift to equities getting a boost from a “TINA” environment for stocks, shorthand for “there is no alternative.” Bond yields are around historic lows, while real estate — once the go-to investment for Chinese citizens wanting to get rich — hasn’t recovered from its yearslong slump. One-year fixed deposits at China’s largest banks now pay just 0.95% per year, the lowest on record.
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“There is a shortage of investable assets in China,” said Winnie Wu, chief China strategist at BofA Securities. “If the stock market has a clear money-making effect, people will be willing to allocate more funds.”
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A key question is how well Chinese officials can manage market swings. Regulators and local investors have been scarred by previous periods of boom and bust, most dramatically a bubble a decade ago that wiped out more than US$2 trillion of market value when it burst.
Local broker Sinolink Securities Co has hiked margin requirements for stock traders, while some onshore mutual funds have limited the size of new orders. It is unclear whether these moves were triggered by regulatory guidance, but it’s common for Chinese officials to issue behind-the-scenes instructions to brokers and funds during periods of wild stock swings.
Chinese media has also cautioned investors against speculation.
Local investors clearly have plenty of cash to put to work, but fund managers and analysts say it will be steady rises rather than wild swings that will encourage them to stick around this time.
“It’s important this time to have a slow bull market,” said Wu Xianfeng, a fund manager at Shenzhen Longteng Assets Management Co. “That is the only way a shift from deposits to stocks can be sustainable.”
