Today, the Chinese stock market had a big comeback. Both the CSI 300 and Shanghai Composite indices went up by more than 3%.
Assessing the Sustainability of the Market Recovery
This rise happened after the Chinese government stepped in to show that they are still trying to keep the Chinese stock market stable. In addition, the yuan currency made a big comeback, especially against the US dollar. The USD/CNH pair fell to around 7.20 from near 7.22 earlier in the day.
Even though things are looking up, there are still worries about whether this comeback will last or if it is just another case of a “dead cat bounce.”
In the past month, there have been several similar rallies that were quickly followed by more drops. Based on this trend, it looks like trust and support for the market are still low.
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It is important to stress the lack of basic support because China still needs to fix problems at its roots to restore investor trust and keep the recovery going.
As was already said, the Chinese stock market’s long-term economic picture doesn’t look good. When things are like this, trying to hit the bottom of the market can be dangerous, like trying to catch a falling knife.
When things are like this, smart investors are careful, putting risk management first and waiting for better conditions before making big investment choices.