The Chinese stock market staged a strong rebound on Monday, as investors snapped up bargains after a steep sell-off last week. The Shanghai Composite Index rose 2.4% to close at 3,253.60 points, while the Shenzhen Component Index gained 3.8% to end at 14,141.06 points. The ChiNext Index, which tracks China’s Nasdaq-style board of growth enterprises, surged 5.3% to finish at 3,201.02 points.
The rally came after the Chinese stock market plunged to its lowest level since December last year on Friday, amid concerns over China’s regulatory crackdown on various sectors, such as technology, education, and property. The Shanghai Composite Index lost 8.6% last week, while the Shenzhen Component Index dropped 9.4%. The ChiNext Index tumbled 11.9%, marking its worst weekly performance since October 2018.
Some analysts said that the market had overreacted to the regulatory risks and that the fundamentals of the Chinese economy remained solid. They also pointed out that the Chinese authorities had taken steps to ease market jitters, such as injecting liquidity into the banking system, issuing supportive statements, and encouraging state-owned funds to buy stocks.
“The market has priced in most of the negative factors and the valuation has become more attractive,” said Zhang Gang, a strategist at Central China Securities. “The policy signals have also turned more positive, which boosted market confidence.”
Bargain hunters flock to battered sectors
Some of the sectors that were hit hard by the regulatory clampdown saw a strong rebound on Monday, as bargain hunters swooped in to buy cheap stocks. The education sector, which was virtually wiped out after China banned for-profit tutoring in core school subjects, soared 8.9%, led by New Oriental Education & Technology Group and TAL Education Group, which both jumped by the daily limit of 10%. The sector had plunged 70% last week.
The technology sector also bounced back, as investors bet that the worst was over for the industry that has faced increasing scrutiny from Beijing over issues such as data security, antitrust, and overseas listings. The sector rose 4.7%, with e-commerce giant Alibaba Group Holding and gaming leader Tencent Holdings both gaining more than 6%. The sector had slumped 13% last week.
The property sector, which has been under pressure from China’s tightening measures to curb speculation and debt, also recovered some of its losses, rising 3.1%. The sector had dropped 9.4% last week.
“Some of the sectors that were oversold have seen a technical rebound, as investors hunted for bargains,” said Yang Delong, chief economist at First Seafront Fund Management. “The market sentiment has improved slightly, but there are still uncertainties and risks in the medium term.”
Outlook remains cautious amid regulatory uncertainty
Despite the rebound on Monday, some analysts warned that the outlook for the Chinese stock market remained cautious, as the regulatory uncertainty could continue to weigh on investor confidence and corporate earnings. They also said that the market could face more volatility and fluctuations in the coming weeks.
“The rebound is not sustainable, as the regulatory risks are still high and unpredictable,” said Li Shaojun, an analyst at Guodu Securities. “The market is still in a correction phase and there is no clear bottom yet.”
Li added that investors should be selective and focus on sectors that have less regulatory exposure and more growth potential, such as new energy, biotechnology, and consumer staples.
Zhang from Central China Securities also said that investors should be prudent and avoid chasing short-term gains. He said that investors should pay attention to the upcoming earnings season and the macroeconomic data releases in August, which could provide more clues on the health of the Chinese economy and corporate profitability.
“The market is still facing many challenges and uncertainties,” Zhang said. “Investors should be prepared for more volatility and adjust their positions accordingly.”