The Chinese stock market has seen "surge, retraction, and then surge again," with the Shanghai Composite Index closing above 3880 points.

"Surge, retraction, and then surge again" is a very critical movement, reflecting the psychological game among investors.

· On one hand, people are starting to pause and reflect on the recent upward trend, which has been volatile;

· On the other hand, assets such as gold and U.S. stock futures that surged last Friday also gave back some gains today. The A-share market's "surge" is a response to the events from last Friday night, while the "retraction" follows the trend of other markets. The subsequent "surge again" indicates strong investor enthusiasm, and the A-share market may still experience further upward movement.

The following three points will be key to whether the upward trend can be maintained in the short term:

First, residents' money is in motion.

In 2021, bank fixed deposits increased by less than 0.7 trillion each month; by early 2023, the monthly increase exceeded 1.5 trillion—now this money is shifting towards the stock market. This is a "slow variable" and could be a major source of incremental funds in the coming months. However, it is important to note that these funds have limited risk hedging means, making them susceptible to rapid inflows and outflows. If a one-sided crowding does occur, it may push up the market in the short term, but will also lay the groundwork for a quick reversal.

Second, Chinese government bond yields have risen.

The rise reflects market optimism about the economy or inflation. However, the central bank is clearly reluctant to see too fast an increase; 2.5% is a policy-related "invisible red line." If the bond market stabilizes within this range, the stock market will feel more secure; once it breaks through, rising liquidity costs will pressure the stock market.

Third, the structure of the real economy is unbalanced.

High-frequency data (updated every two weeks) shows:

  • Overall activity in July-August has been relatively stable, with last year's base being very low, so the year-on-year growth looks good.

  • Export data continues to be favorable (container shipping volumes remain high).

  • Both fiscal and monetary policies are relatively loose (more bonds issued, ample liquidity).


But the shortcomings still exist:

  • The real estate market remains sluggish;

  • Employment pressure is high, with the youth unemployment rate rising to 17.8% in July.


Exports and policies provide "external support," but real estate and employment are the "internal engines." Unless these two shortcomings are resolved, the stock market is more likely to be in a phase of limited movement. Particularly, the youth unemployment rate at 17.8% indicates that economic vitality and consumer capacity are constrained.