Will the A-shares skyrocket tomorrow?

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  • February 3, 2025

The Chinese A-share market has faced a rollercoaster ride recently, capturing the attention of investors and analysts alikeThe intensity of the fluctuations was palpable as the indices dipped sharply, exceeding four percent at one point during the trading sessionFollowing a streak of four consecutive days of decline across the three major indices, the fear among investors was evidentQuestions loomed large in the minds of traders – when would the downward trend cease, and how long would it take before a resurgence could be expected?

However, as the closing hour approached, a surprising turn of events unfoldedThe market experienced a remarkable rebound, resulting in a V-shaped recoveryThe drastic declines that had been anticipated did not materialize, with the number of stocks hitting their daily trading limit falling from over sixty to just nineAs the dust settled and trading came to an end, many investors breathed a sigh of relief, clearly relieved that their losses had not deepened.

This emotional rollercoaster was not merely a reflection of the tumultuous domestic market; rather, it was intricately linked to international trends

Recent declines in the A-share market were influenced significantly by falling global stock markets and escalating geopolitical tensionsYet, as European markets began to rally, showing solid gains led by Austria, Italy, Germany, and France, the rationale for the A-shares to resist the upward trend begun to fade.

In just a few hours, Austria's market surged by an impressive 5.28%, while Italy, Germany, and France followed with increases of 4.8%, 4.59%, and 4.3%, respectivelyThe positive movement across these European markets signifies not just a local recovery but also indicates a more stable economic environment for the Eurozone, traditionally viewed as the backbone of Europe’s economy and financial infrastructureOther European nations, including Belgium, the Netherlands, Sweden, Spain, and Switzerland, also mirrored this optimistic momentum, with gains exceeding 2.5% in their respective markets.

This wave of recovery starkly contrasts with the persistent downturn that the A-share market has faced, predominantly influenced by the previous turmoil in the global markets

The anticipation for a turnaround seems increasingly justified as both European and US markets showcase positive trendsPre-market indicators from Wall Street painted a promising picture with significant gains across major U.Stech stocksTesla, Apple, and Amazon saw pre-market increases, hinting at a positive performance ahead for American indices.

When further examining the performances of significant Chinese stocks in the U.Smarket, it becomes apparent that optimism is also present thereAlibaba's pre-market trading saw an increase of 1.7%, while JD.com boasted an impressive increase of 3.5%. Other notable increases included Pinduoduo and Li Auto, highlighting a positive sentiment towards Chinese companies listed abroad.

Considering these trends, the question arises: if international markets are on an upward trajectory, what grounds does the A-share market have to lag behind? The day’s trading demonstrated that the A-share market, despite the earlier turmoil, experienced a notable recovery toward the session's end, particularly symbolized by the long lower shadow created on the candlestick chart – a bullish indicator often interpreted by analysts as a potential bottoming out.

Nevertheless, the primary backdrop for this volatility is rooted in the broader fluctuations within the international economic landscape, particularly in Europe

Since mid-February, European markets have largely trended downward, with Germany witnessing declines of as much as 19%, Italy 21%, and France approximately 17%. In comparison, A-shares have shown resilience, displaying relatively minor declines, with the Shanghai Composite Index seeing a drop of just 1% and the Shenzhen Component Index a decrease of 3% over the same period.

If one accounts for the substantial declines across three days of trading, the A-share indices seem to maintain less impact from the broader market's turbulence than their European counterpartsA comprehensive view reveals that the Shanghai Composite Index recorded a maximum decline of 9.3% since February 18, while other indices such as the Shenzhen Component and ChiNext have seen drops of 13.5% and 13.3%, respectively.

This raises doubts about whether the A-share market has merely been delaying its inevitable corrections while European markets suffer more dramatically

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Given the striking differences in the extent of declines across markets, it raises questions about the underlying imbalances in the global marketplaceInvestors wonder if it is justifiable to expect the A-share market, situated thousands of miles away, to be immune to the sweeping changes occurring in Europe.

As things currently stand, even with the recent corrections, it seems unjust to subject the A-share market to the same level of distress experienced in EuropeThe convalescence of U.Sand European markets begs the question: shouldn’t the A-share market experience its share of a recovery? In a time when both U.Sand European equities embark on a path toward recovery, one may optimistically expect that the Chinese market could rally, restoring some of the lost bullish sentiment among investorsWill this be the turning point that washes away the apprehensions that have loomed over market participants?

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