China Stock Market Slumps Due to Xi’s Speech After Reaching $10 Trillion High

Chinese domestic equities hit a market capitalization record of $10.08 trillion on Tuesday.
Steven LernerOct 14,2020,20:06

Chinese domestic equities hit a market capitalization record of $10.08 trillion on Tuesday as investors continue to trust in the country’s economic recovery.

The previous record of $10.05 trillion was achieved during a market bubble in June 2015 that followed regulations on leveraged trading after that bubble burst,

Stocks gained steam in hopes that the government would potentially institute rules to stimulate more economic demand and enact new policies to transform Shenzhen into a center of business technology.

However, an anticipated 50-minute speech delivered by Xi Jinping on Wednesday failed to offer any insights about these reforms.

This missed opportunity to lay out a comprehensive plan caused Chinese stocks to plunge Wednesday, with the CSI 300 Index declining 0.7% and the Shanghai Stock Exchange Composite falling 0.56%.

Chinese stocks have rallied since the market collapsed due to the pandemic and it is likely the only major country to avoid an economic contraction in 2020 so far. Since March, Chinese domestic stocks have compiled an additional $3.3 trillion in value.

The International Monetary Fund predicted on Tuesday that China will grow 1.9% this year.

Chinese equities have benefited from new policies that encouraged trading, as well as an outstanding economic recovery from the pandemic. A stronger yuan has also helped investments.

Perhaps the biggest catalyst behind the growth in 2020 is the collection of companies that were able to quickly go public due to deregulated rules on valuations and price limits. Shanghai’s STAR Market and Shenzen’s ChiNext Index have paved the way to connect investors with growing technology stocks.

While $10.08 trillion is the second-largest market cap in the world, it still lags far behind the United States, which has an equities market cap of $38.3 trillion.

Topics:china stocks