Central banks' steps fuel impressive increases in total turnover, trading

Recent monetary policy moves by the central banks in China and the United States have fueled a rally in the major stock markets in both countries, with the bourses notching up impressive gains in turnover and trading, experts said on Thursday.

What is more surprising is that these bright spots have emerged at a time when the global economy is yet to fully recover from the COVID-19 epidemic, they said.

The benchmark Shanghai Composite Index closed 0.26 percent higher at 3386.46 points, while the Shenzhen Component Index fell by 0.7 percent to 13863.13 points. However, the total trading volume on both bourses stood at 1.29 trillion yuan ($185.7 billion).

Analysts from CITIC Securities said that A-share market fluctuations could prove to be a window of opportunity for investors, especially shareholders of companies related to consumption, healthcare and nonferrous metals.

Xun Yugen, chief strategist of Haitong Securities, said the A-share market is likely to see additional capital inflows this year, largely in the form of individuals' savings, as equity investment is gaining traction among more people in China.

"From a macro perspective, there will be adequate liquidity in the market for the subsequent months. It is expected that net capital inflows into the A-share market will exceed 1.5 trillion yuan for the whole year," he said.

In the US, the major bourses closed near the highs of the intraday session on Wednesday as pharmaceutical companies reported progress in developing a COVID-19 vaccine and the US Congress continued to work out another economic relief package. The Nasdaq Composite gained 0.52 percent to close at 10998.40 points on Wednesday, reporting an increase for six consecutive trading days. The technology-focused index exceeded 11000 points in the early trading hours on Wednesday, a new historic high.

Experts from the Institute of International Finance said that the depreciation of the US dollar and the relaxed monetary policy of the US Federal Reserve have helped to pillar the optimistic sentiment in the US bourses.

David Chao, global market strategist of Invesco Asia-Pacific, said the surge in the US stock markets was mainly due to the fiscal and monetary policies. The low interest rates have further lowered bond yields, offering investors an option other than equities.

Mohamed El-Erian, chief economic adviser at Allianz SE, told Reuters Global Markets Forum that the US equities will not revisit the March lows. But he added that the next big correction of the US stock market will likely be triggered by "corporate defaults and other capital impairment events that central banks cannot shield against".

Wang Xinjie, investment strategy director of the wealth management department at Standard Chartered China, said the overall outlook for the US stock market in the next few months is positive. Favorable government policies, which form one major impetus, will remain unchanged before the US presidential election in November, he said.

In addition, the US will not impose any strict lockdown measures in the next few months. Therefore, companies will gradually resume normal operation and their stock market performance will further improve, said Wang.

"Unlike the macroeconomic environment, the capital market will soon rebound as long as there is a little room for imagination," he said.