After three days of confident growth, Chinese stock markets showed mixed dynamics on Thursday, reflecting the overall atmosphere of caution that hung over investors. The Shanghai Composite Index slightly decreased by 0.22%, while the Shenzhen Component lost 0.48%. This halt in the rally is not a sign of panic but rather a moment of sober assessment, as market participants attempt to weigh the verbal assurances of the authorities against the backdrop of a lack of concrete economic measures.
Between the optimism of the authorities and the caution of investors
In recent days, the news backdrop for the Chinese market has been predominantly positive. A decrease in geopolitical tension in the Middle East, where a ceasefire between Iran and Israel has held, as well as reports of planned negotiations between the US and Iran, have eased concerns about global oil supplies and improved overall risk sentiment.
On the domestic front, officials also broadcast confidence. Premier of the State Council of China Li Qiang once again assured that Beijing is 'strengthening macroeconomic policy, actively expanding domestic demand, and resolutely stimulating consumption.' In confirmation of these words, the People's Bank of China (PBC) published a draft of guidelines aimed at supporting the consumer sector, including easing access to financing for relevant companies. Furthermore, on June 25, the regulator injected 300 billion yuan into the banking system through the Medium-Term Lending Facility (MLF) to maintain sufficient liquidity.
However, this rhetoric and targeted measures have proven insufficient to support further stock growth. Investors seem to have taken a wait-and-see position. Despite all assurances, uncertainty remains in the market regarding the actual content and scale of the upcoming stimuli. All eyes are now on the July meeting of the Politburo of the Central Committee of the Communist Party of China, from which concrete and decisive steps to support the economy are expected. The decline in shares of companies such as East Money (-3.6%) and electric vehicle leader BYD Company (-3.4%) underscores this caution.
Different assets – different stories
While the stock market took a pause, other segments of the Chinese financial market demonstrated confidence.
The yield on China’s 10-year government bonds continued to rise, reaching around 1.65%. This increase reflects an improved appetite for risk—investors are less interested in safe-haven assets such as government bonds in light of positive signals from the authorities and the stabilization of the geopolitical situation.
The yuan showed the most notable dynamics. In the offshore market, its exchange rate strengthened to above 7.15 per dollar, reaching a high not seen since early November 2024. This was aided not only by the widespread weakening of the US dollar but also by Beijing's targeted efforts to internationalize its currency. The launch of a new center for promoting the digital yuan in Shanghai and initiatives for its use in global trade add confidence to the long-term prospects of the yuan.
Interestingly, against the backdrop of a general lull in the stock market, the technology sector stood out. Shares of Chinese IT companies, such as Zhongji Innolight (+2.3%) and Hundsun Tech (+5.8%), rose, following the global trend. A new record in the stock price of Nvidia, which once again became the most valuable publicly traded company in the world amid enthusiasm around artificial intelligence, served as a driver.
What to expect next?
The current situation in the Chinese markets is a classic calm before the storm. Positive external factors and verbal interventions by the authorities have created a solid foundation, but for the next upward step, the market requires real fuel in the form of a large-scale and concrete stimulus program. The July Politburo meeting will be a key event that will determine investor sentiment in the coming months. Until that moment, the market is likely to remain in a state of fragile equilibrium, reacting sensitively to any hints and signals from Beijing.