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On August 5, dragged down by the sharp drop in the external market, the three major indexes all fell by more than 1%, hitting a new low in the stage of adjustment. As of the close, the Shanghai Composite Index fell by 1.54%, the Shenzhen Component Index fell by 1.85%, and the ChiNext Index fell by 1.89%.

In terms of sectors, education, games, liquor, tourism and other sectors saw the largest increases, while copper cable high-speed connections, storage chips, consumer electronics, CPO and other sectors saw the largest decreases.

Overall, more stocks fell than rose, with more than 4,700 stocks falling in the market. The turnover of the Shanghai and Shenzhen stock markets today was 790.5 billion, an increase of 68.2 billion from the previous trading day.

Over the past weekend, a word appeared many times in brokerage research reports:East rises Westfall。

Literally, it refers to the sharp drop in global stock markets since last Thursday and Friday. Amid risk aversion and a shift in "high-low cutting" styles, Chinese assets are expected to receive more attention.

As of the close of Monday morning, A-shares briefly recorded "a touch of red in the midst of green", and it seemed that "rise in the east and fall in the west" was about to come.

However, during the afternoon trading session, this momentum temporarily disappeared as the A50 index futures plunged and turned green.

As of the close, the indexes were all in the red, with the Shanghai Composite Index once again dropping to 2860 points, a recent low; individual stocks also fell more than they rose. But it is undeniable thatWith the external market falling by -10%, the A-share market, with a single-digit decline, still showed good resilience.。

What is the reason behind this? Will it be sustainable in the future? In other words, can we expect a true “rise in the east and fall in the west”?

Black Monday
How bad is the peripheral market today?

In fact, just looking at the picture below is already amazing (taken at 15:01).

Amid the green, the Asian market, which was the first to be affected by the sharp drop in U.S. stocks last Friday, also suffered the most severe decline.

Specifically:

In the Japanese stock market, the Nikkei 225 index fell 15% at one point during the session and closed down 12.4% at 31,506 points, wiping out all gains so far this year; the Nikkei index recorded its biggest drop in history, surpassing the record of Black Monday in October 1987.

In the South Korean stock market, the Korea Composite Index closed down 8.78%, the biggest drop since 2008. Samsung Electronics and Kia Motors fell more than 10%. The South Korean Kosdaq Index fell more than 11%.

In the Taiwan stock market, the Taiwan Stock Exchange Weighted Stock Price Index closed down 8.4%, the largest single-day drop in history, at 19,830.88 points, falling to the lowest closing level since April 23. TSMC closed down 9.8%, the largest drop in history.

During the A-share trading period, the European and American stock markets, which have not yet opened, also saw a decline in stock index futures, suggestingThe storm has not yet subsided.

After the A-shares closed, major European stock indices fell sharply at the opening, with the Euro Stoxx 50 index down 2.94%, the German DAX index down 2.43%, the British FTSE 100 index down 1.77% and the French CAC40 index down 1.29%.

In a sense,A shares failed to maintain a positive market in the afternoon, was also affected by the panic caused by the further decline of peripheral stock markets——That is, being "brought down"。

Of course, as part of the global market, it is not easy for A-shares to develop a completely independent trend.

Why are A shares relatively resilient to declines?

Let me first talk about a detail during the trading session: the trading volume of the four CSI 300 ETFs increased significantly in the afternoon. As of 14:20, the trading volume of all of them had exceeded the whole day of last Friday; the trading volume of the SSE 50 ETF (510050) exceeded 4.2 billion yuan, which has set the second highest since March 5.

This shows that the recent repeated supportMysterious funds did not let the market fall in panic todayAs a result, the index was roughly flat at the end of the trading day and did not decline further.

Securities China believes that over the past year or so, almost all investable products including equities, commodity futures, gold, and cryptocurrencies have experienced one or more surges, and the reason behind this is the leverage of the cheap yen.However, when interest rates rise and the yen appreciates, these assets explode quickly.The sharp plunge in global markets in recent trading days is a clear example of this.

He pointed out that the market is effective because funds always look for undervalued assets, such as Chinese assets (only Taiwan stocks are overvalued). Due to various reasons, Chinese assets have been continuously sold by foreign investors in the past few years, and their valuations have been hit to historical lows. However, when the global market is falling, these assets have attracted attention.

We also mentioned thatThe main A-share index has become the most resilient stock index since August.。

Some organizations analyzed it this way:

The Bank of Japan raised rates last week while highlighting that real interest rates are in negative territory and leaving the door open for future rate hikes. Japanese stocks initially cheered the news, with large bank stocks rising 4.50%. However, local interest rate markets began to paint a more bearish picture; the Japanese 2-year to 10-year bond yield (2s10s) curve began to flatten sharply, indicating that rate hikes and potential future rate hikes were priced in as a constraint on Japan's economic growth and inflation, which ultimately hit Japanese stocks.

The yen has strengthened significantly against the dollar recently, which has triggered the unwinding of carry trades in a self-reinforcing/negative feedback loop process - as stops are triggered, previously overextended carry positions are increasingly unwound. When last week's US data disappointed, the yen's safe-haven status in the foreign exchange market was sought after, which further exacerbated this trend and disrupted market positioning and pricing, thus generating a series of chain reactions for global risk assets.

Today, the performance of A-shares and Hong Kong stocks, which are also part of the Asia-Pacific market, is obviously more resilient.

On the news front, the Caixin China General Services Business Activity Index (Service PMI) for July released this morning recorded 52.1, up 0.9 percentage points from June, indicating that the expansion of the service industry has accelerated.

Judging from the sub-data of Caixin China Services PMI, the expansion rates of supply and demand in the services sector accelerated in July, and the two major indexes rebounded in the expansion range.

Employment conditions in the service industry improved in July, with the employment index rising into the expansion range and reaching its highest level since September 2023.

After the data was released, the FTSE China A50 Futures Index rose sharply, once digesting the decline in the early morning due to the influence of foreign markets.

The RMB exchange rate also soared again today.

During the intraday trading period, the offshore RMB exchange rate against the U.S. dollar rose sharply, rising nearly 500 points in the morning, strongly regaining the four levels of 7.16, 7.15, 7.14 and 7.13, and once rose above 7.12.

Since last week, the RMB exchange rate has rebounded rapidly from its low point this year, and the trend of strengthening is obvious. Last week, the offshore RMB rose by more than 1,500 points against the US dollar, rebounding nearly 2% during the week; the onshore RMB rose by more than 1,000 points against the US dollar, recovering more than 1% during the week.

Regarding the repeated appreciation of the RMB, Li Liuyang, a foreign exchange research expert at CICC, said that changes in the external environment leading to the closing of carry trades and the implementation of stable exchange rate policies may be the two main reasons for the recent rebound in the RMB exchange rate.

How attractive will RMB assets be against the backdrop of continued plunge in the external markets?

Analysts believe that the situation should be viewed from two perspectives: first, to see to what extent the actions of peripheral central banks (especially the Federal Reserve) can reverse the impact of the yen carry reversal; second, to see the strength of the domestic economic recovery.

Judging from the domestic situation, if the external market continues to be turbulent, exports will inevitably be affected, and the growth momentum may shift to consumption and investment, which will trigger higher market expectations for fiscal and monetary policies.If the expectations are realized, the attractiveness of the RMB and the stock market is expected to increase。

Can “the rise of the East and the decline of the West” be expected?

AVIC Securities believes that the US economic data weakened again, and the US stock market once appeared to be in a "recession trade". At the same time, the Federal Reserve is gradually approaching a rate cut, opening up space for domestic monetary policy. The recent important domestic meetings have set a positive tone, and there is a high probability that the domestic growth will be further stabilized. The market's confidence in economic recovery has increased, and sentiment has improved.The short-term market bottom may have been formed, and the future may shift to "rise in the east and fall in the west" trading.

CICC also pointed out that global US dollar liquidity seemed to be showing signs of "countercurrent", the RMB exchange rate jumped during the week, northbound funds once flowed in rapidly, and the market launched a "rising in the east and falling in the west" trading narrative.

In the past, the risk of Chinese assets was suppressed by two major factors: insufficient effective demand and a strong dollar. Currently, the tight global dollar liquidity has been loosened.

Behind the East-Rising West-Falling transaction, the market is really concerned about two macro issues:

Is the United States heading for a hard landing?There are short-term disturbances in the unemployment rate in July. The U.S. private sector balance sheet is relatively healthy, and there is ample room for monetary easing in the United States. We do not recommend excessive left-side trading in the event of a hard landing in the United States.

Is China ushering in strong stimulus?The key to judging whether the stimulus policy is effective is whether it can leverage the year-on-year growth of social financing and M1. The focus of this year's policy is on monetary policy. Compared with fiscal policy, the efficiency of loose monetary policy in promoting loose credit is relatively slow.

Regardless of the outcome, what is foreseeable is that right now, in the near future, we will witness a new chapter in the history of the global capital market.

Investment is risky, independent judgment is important

This article is for reference only and does not constitute a basis for buying or selling. You should bear the risks of entering the market at your own risk.

Cover image source: Screenshot of market software

Reporter Zhao Yun, Editor Xiao Ruidong

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