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Despite China's stock market's meteoric rise following the country's enormous stimulus, many international analysts and investment managers still need to be convinced. Its sharp decline over the past few days hasn't helped matters either.
After several government initiatives boosted investor optimism and led financial firms like Goldman Sachs to upgrade Chinese equities to overweight, the country's stock price has soared since the end of September.
Among the more than 90 global market gauges monitored by Bloomberg, the Hang Seng China Enterprises Index—which includes Chinese equities listed in Hong Kong—has gained more than 35% in the last month, fueled by stimulus announcements, investors quickly redirected liquidity to capitalize on the index's momentum.
However, this rapid increase has also raised concerns that it may go too far or too soon.
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Still, according to one of the most reliable indicators of cryptocurrency demand, some Chinese investors are re-directing their money from digital assets to the country's booming stock market.
Even though crypto trading was outlawed in China in 2021, many people living on the mainland still utilise offshore accounts and exchanges to trade digital currencies, partly to evade capital controls and transfer assets abroad.
Dessislava Aubert, a senior research analyst at blockchain data business Kaiko, claims that the world's most popular cryptocurrency, Tether's USDT stablecoin, has been trading at a discount to the dollar since the end of September.
In response to a deteriorating economic outlook, the Chinese central bank implemented several measures while the discount emerged.
According to Kaiko's Aubert, the dollar has become the de facto yardstick for assessing activity since crypto exchanges do not provide USDT/Chinese yuan trading pairings due to the restriction.
The little drop in price indicates that there is a greater desire to buy dollars and sell Tethers.
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Exchanges make it hard to tell how much of the selling pressure on USDT has originated from Chinese investors, while other platforms make it easier to see.
The offshore yuan trades at 7.07 per dollar on the regular currency market.
Still, according to Binance's peer-to-peer marketplace, Chinese yuan merchants are offering USDT over-the-counter prices ranging from 6.78 to 6.98 per yuan.
On September 30, the last trading day before China's market closed for the vacation, the Shanghai Composite Index surged 21% from September 23 to 30. Upon returning to trade on Monday, the index surged by an additional 8%.
These investors primarily hail from Asia and possess extensive market knowledge, as well as a diverse range of strategies that extend beyond digital assets.
According to estimates provided by blockchain intelligence firm Chainalysis, over-the-counter brokers in China have received "unprecedented" capital inflows this year.
This indicates that investors there continue to have a strong desire for cryptocurrencies despite the prohibition.
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BRN analyst, Valentin Fournier, explains, "the sharp growth of the HSCE index was driven more by expectations of future gains than by any immediate improvement in economic activity. But fading expectations have led to a 12% decline in the past two days, as investors began to take profits and withdraw funds from the index, questioning the true impact of the stimulus."
He added that this newly freed liquidity could flow back into cryptocurrency markets and the stock market, providing momentum as the US economy seems to be improving, according to the latest inflation and unemployment data.
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Events
GeckoCon (Bangkok, 11 November 2024)
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