On the eve of the 2024 National Day holiday, China’s stock market experienced a remarkable surge, attracting considerable attention. However, following the holiday, the market unexpectedly turned to a dramatic plunge. This “polarization” of the stock market – a rollercoaster ride between soaring highs and plummeting lows – not only subjected investors to a thrilling yet nerve-wracking experience, but also prompted deep reflection within the market regarding policy, economic conditions, and fundamental market rules.
Pre-National Day Stock Market Surge: A Policy-Driven Frenzy
Over the five trading days leading up to National Day, China’s stock market surged from a slump into “boiling mode.” On September 30th, the A-share market saw a full-scale rally with all indices hitting historic highs. The Shanghai Composite Index rose by 8.06%, the Shenzhen Component Index increased by 10.67%, and the Innovation Board China Advanced Index soared by 15.36%, while the STAR 50 Index achieved its largest single-day rise in history, jumping 22.84%. Market sentiment was extremely exuberant, with daily trading volumes across the Shanghai, Shenzhen, and Northern Exchanges reaching RMB 2611.5 billion, a significant increase of RMB 11559 billion compared to the previous trading day. More than 5300 stocks on the main board rallied collectively, creating a “sea of red.”
The core driver behind this rally was the concentrated release of a series of unexpectedly positive policies by the government and the resulting changes in market expectations. On September 24th, the People’s Bank of China announced a cut in the reserve requirement ratio and interest rates, reducing existing mortgage loan interest rates and standardizing the minimum down payment ratios. The Politburo Standing Committee’s meeting on September 26th emphasized the need to intensify counter-cyclical fiscal and monetary policy adjustments to boost capital markets and actively guide medium and long-term funds into the market. On September 30th, a series of real estate support policies were released. These measures conveyed the government’s determination to stabilize the market and promote growth.
Post-National Day Stock Market Plunge: Calm and Adjustment After the Frenzy
However, market sentiment plummeted sharply after the National Day holiday. On October 8th, the A-share market opened strongly with nearly a limit-up rise, but following a significant high opening, the market experienced violent fluctuations before closing down. Since then, the market’s center of gravity has continuously shifted downwards, and as of October 16th, the Shanghai Composite Index rose and fell by more than 15%, cumulatively falling by over 470 points. From October 8th to 10th, core A-share indices all declined, with the Shenzhen Component Index down 6.21%.
The reasons for this plunge are multifaceted. On one hand, it was a digestion of risks accumulated from the rapid rise in the previous period; on the other hand, it was also related to adjustments in market expectations regarding policy. Some investors believed that the short-term effects of policies were already evident, but the long-term effects still needed to be observed. Furthermore, volatility in global markets also impacted A-shares. On October 9th, the Hang Seng Index fell by 9.41%, and A50 futures fell by 10.4%, further exacerbating market declines.
Reflection and Outlook on the Market
The dramatic volatility in the stock market around National Day highlighted a deep reflection among investors regarding policy, economics, and market fundamentals. On one hand, the short-term stimulus effects of policies were significant, but their long-term impact remains to be observed. On the other hand, the rapid rise and fall of the market served as a reminder for investors to maintain rationality and avoid emotional investment.
Looking ahead, whether A-shares can usher in a genuine “long bull” trend depends on whether policy can effectively transmit to the real economy and ultimately drive substantive improvements in economic fundamentals. Investors should closely monitor the specific implementation of policies and changes in economic data to rationally adjust their investment strategies.
The sharp rises and falls in the stock market around National Day were a game between policy and the market, and also a test of investors’ mentality. In this “two-pronged” market environment, we saw the power of the market and the influence of policy. How the market will unfold in the future remains to be seen.