The Shanghai Composite and CSI 300 continued their strong rally this month, adding over $1 trillion in market value. Shanghai jumped to CNY 4,415, while the CSI 300 jumped to CNY 4,485. This article explains why Chinese stocks have continued soaring this year.

Shanghai Composite and CSI 300 jump as part of the global stock market surge 

One of the top reasons why Chinese stocks are surging is that the global stock market has been in a strong rally this year. In the United States, the S&P 500 and the Nasdaq 100 are all sitting at their all-time highs. 

Similarly, the same is happening in Europe, where the German DAX and French CAC are hovering near their record highs. In most cases, global stocks move in the same direction over time. 

One reason for the rally in stocks is the tailwinds of artificial intelligence, which has been the main theme in the market this year. In China’s case, the rally was sparked by the success of DeepSeek earlier this year.

Shanghai Composite vs CSI 300 Index

Substantial savings after the real estate collapse 

The Shanghai Composite and the CSI 300 indices have also jumped because of the excessive savings by many people in China following the collapse of the real estate sector. 

Historically, most people in the country used to save their money in real estate, where prices kept rising. This changed a few years ago when China forced the local real estate companies to reduce their exposure on debt, leading to the collapse of several companies, including Evergrande.

As the Chinese economy has recovered from the pandemic, people found themselves with substantial sums of money and no secure place to invest in. As such, most of them have turned to the stock market because of its substantial returns and liquidity.

China central bank cuts and bond market

The other main reason why the Shanghai Composite and the CSI 300 have surged is that the Chinese central bank has been cutting interest rates in the past few years.

Data shows that the central bank left interest rates unchanged at a record low of 3% as the country remained in deflation.

Lower interest rates have made government bonds unattractive. The ten-year yield has remained at 1.772%, while the year stood at 1.63%.

Analysts expect the central bank to maintain low interest rates for longer, especially as the country continues to deal with Donald Trump’s tariffs and inflation remains low.

In addition to lower interest rates, officials have announced several stimulus measures, including lowering reserve requirements for banks.

China’s ten-year bond yields

China economy is doing well

The stock market has also thrived because of the ongoing performance of the Chinese economy. The most recent results showed that China’s GDP expanded by 5.2% in the second quarter, meaning that it will hit or surpass the government’s target of 5%.

China’s economic growth is partly due to rising exports, including to the United States. The most recent data showed that exports soared by 7.2% in July, higher than the expected increase of 5.4%

What next for Chinese stocks?

It is likely that the Chinese stock market will continue doing well this year as the fear of missing out continues. 

However, there is also a risk that the Chinese market is going through a bubble, which could pop as it has done in the past few years.

Indeed, some brokers are preparing for a potential crash. For example, Sinolink Securities has raised its margin deposit ratio on new client financing contracts for some stocks to 100%. Also, some mutual fund companies recently imposed daily purchasing restrictions.

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