Finally, some joy for stock market investors as the A-shares experienced a significant rebound after days of declineNearly 4,000 stocks bounced back, with 139 reaching their limit-up prices, and approximately 50% of the stocks rose by more than 3%. Moreover, a rare net inflow of 12 billion yuan pushed the overall market upward.

The day started off on a down note due to yesterday’s severe market drop, which hit a new low for the year, coupled with a nearly 4% decline in the Nasdaq overnightHowever, by the afternoon, there was a dramatic shift; the indexes climbed steadily, with the Shanghai Composite Index gaining 2.49% and closing above 2900 points at 2958; the Shenzhen Component surged by 4.37% to 10653, while the ChiNext Index soared by 5.52%, recovering the 2200 mark to close at 2269.

What led to this market surge? Two primary factors contributed to the significant climb in A-shares

Firstly, there was a strong demand for a rebound from an oversold positionSince mid-April, A-shares had been in a prolonged downward trajectory, with the Shanghai Composite Index dropping from the 3200-point range below 2900, a loss of 10%. The ChiNext Index fell even more dramatically, plummeting over 20% from its early April high of 2700 points to lows in the 2100 rangeSuch steep declines, especially in the ChiNext’s case, have only been matched during the 2015 stock market crash.

The second major contributor to the recovery was the positive statements from various government departments, offering support for the stock marketThe People’s Bank of China (PBOC) commented on the recent fluctuations in the financial markets:

“We’ve noticed some volatility in the financial markets recently, mainly influenced by investor expectations and sentiments

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However, the current fundamentals of China’s economy are solid, with substantial potential for internal economic growth, alongside real progress in mitigating financial risks." The PBOC reassured the public that efforts would continue to minimize the pandemic's adverse effects on economic and social development while swiftly executing reforms for large platform companies to promote the healthy growth of the platform economy.

Such remarks from the central bank had a notably positive impact on the stock marketConcerns regarding pandemic implications and potential economic slowdown loomed large, especially with worries about meeting the 5.5% GDP growth target, considering that the GDP growth rate in the first quarter was only 4.8%. Additionally, the ongoing restructuring of internet platform companies is another vital aspect influencing capital market trends; expediting this process could help stabilize the markets.

In addition to the PBOC, two other ministries voiced their support for the capital markets

The China Banking and Insurance Regulatory Commission stressed the importance of supporting steady market operations, facilitating capital flows, and attracting more foreign direct investment and securities investmentsMeanwhile, the China Securities Regulatory Commission highlighted the need to address market concerns promptly, guide market expectations, and boost market vibrancy and resilience to sustain a stable and healthy capital market.

The market had diminished to a point close to historical lowsUpon reviewing the previous day, I found that over 54% of all stocks had fallen below their March 2020 lows— a month marked by significant turmoil due to the onset of the COVID-19 pandemic, leading to unprecedented market activity, including four circuit breakers in ten days for U.SmarketsMoreover, about 42% of stocks were valued lower than during the market dip in 2018 when the index hovered around 2500. In this context, even though the composite index only dipped below 2900, actual stock prices appeared to have descended to around the 2700 mark, indicating a robust need for an upturn.

The crucial question for investors now is whether the A-share market has indeed hit its bottom

Is today’s rebound a sign of a reversal?

This year’s market adjustment has been notably harsher than last year's post-Spring Festival amendmentsThe ChiNext fell by up to 40%, while the Shanghai Composite Index dropped over 20%. By contrast, the adjustments last year were milder and shorter-lived, lasting only a monthIn contrast, the downward trend of this year began in December 2021 and has persisted for four to five months.

The extent of this year’s adjustments can be compared with those in 2018. With such significant shifts, a single rebound is unlikely to set the bottomIn fact, establishing a bottom may necessitate time and the possibility of recurring repeated dips.

Several factors continue to weigh heavily on the A-shares marketFor instance: when might the outbreaks in Shanghai end? What form might the conclusion take? Furthermore, the ongoing international conflicts remain paramount—without a peace treaty, escalation is still a possibility

Moreover, the potential for Federal Reserve interest rate hikes looms over the market; substantial increases could lead to significant dollar inflows.

On the internal side, there is the issue of new stock issuancesOver the past three years, there have been more than 1,200 new IPOsIn the last six years, over 2,000 companies have gone public, which equals the total number of IPOs issued in the previous 25 yearsAlthough, during these six years, the number of investors in the stock market increased from 100 million to 200 million, the number of listed companies has nearly doubled, effectively increasing supplyCan the new influx of IPOs generate equivalent funding to sustain this market?

Currently, market capital is relatively restrainedTherefore, the continual issuance of substantial IPOs with high valuations and significant financing pounds is evidenced by the recurring phenomenon of newly listed stocks frequently falling below their offering prices