A-share market surges past 100 trillion mark

China's A-share market surged to a fresh milestone on Monday, with total market capitalization exceeding 100 trillion yuan ($14 trillion), buoyed by robust trading activity, improving investor sentiment and sustained capital inflows.

Analysts said the rally may extend further amid reform measures by policymakers to improve returns to investors, the country's accelerated economic transformation and a more favorable external environment.

While the benchmark Shanghai Composite Index closed 0.85 percent higher on Monday, at one point in early trading hours it stood at 3,741.29 points, the highest level in 10 years. The BSE 50, which tracks innovative small and medium-sized enterprises at the Beijing Stock Exchange, jumped 6.79 percent to close at a historical high.

According to experts at Guotai Haitong Securities, A-share indexes are likely to refresh the current records amid institutional changes taking place in the Chinese capital market, which should not be overlooked.

Regulators' emphasis on improving returns to investors has changed people's understanding of Chinese assets and lowered their risk appraisal for the stock market. China's accelerated economic transformation, the lowered risk-free interest rates and the capital market reform will serve as the cornerstones of a bullish Chinese stock market, they said.

Data from the People's Bank of China, the country's central bank, showed that China has made progress in improving the capital market's function in facilitating financing to the real economy.

The proportion of direct financing — including corporate bonds, government bonds and domestic stocks of nonfinancial enterprises — in the country's outstanding aggregate social financing increased from 26.7 percent at the end of 2018 to 31.1 percent by the end of June this year, the PBOC said.

The continued flow of active capital from individuals, margin trading and private equity is another driving force of the slow bull recently seen in the A-share market, said Chen Gang, chief strategist at Soochow Securities.

Qin Peijing, chief strategist at CITIC Securities, said that A-share listed companies in the resource sector, as well as innovative drugs, artificial intelligence, games and defense, may benefit the most in anticipation of more capital inflows. Market expectations are high that the US Federal Reserve will adopt a 25-basis-point rate cut in September, directing more capital to Asia.

More individuals have entered the A-share market. The 71-percent year-on-year spike in the number of newly opened A-share accounts in July, and the 39-percent monthly increase in capital inflows contributed by individual investors, have shown individuals' strong willingness to be part of the A-share market, said Song Xuetao, chief economist at Sinolink Securities.

He Kang, chief strategy analyst at Huatai Securities, said that households' demand deposits will serve as one major source of capital flowing into the A-share market if continued wealth can be created by the stock market.

He also highlighted the greater importance that foreign investors attach to Chinese assets. Trading by foreign investors via the stock connect program linking the Shanghai, Shenzhen and Hong Kong bourses accounted for 12.9 percent of all the A-share trading during the week ending on Friday.

However, Yang Delong, chief economist at First Seafront Fund, warned investors of the possibility of larger market fluctuations given that prices of some companies are already at a high level.

Wang Pengbo, a senior analyst at market consultancy Botong Analysys, said that some cardholders have recently attempted to illegally transfer cash from their credit cards to invest in the stock market. This poses the risk of capital shifting from the real economy.

Therefore, more than 10 Chinese banks have recently reiterated that credit card capital cannot be used for wealth management purposes, including investing in stocks, funds and cryptocurrencies, among others.