Foreign Capital Rushes into Stock Market, Intensifying Bull-Bear War, Caution for Retail Investors

Yesterday, someone asked if I could talk about the market trends for next week. We believe that the market will rise this week, but it might become more chaotic.

Recently, we have been emphasizing that the most important thing in the current stock market is to look at the overall trend. So, what is the overall trend?

Firstly, speaking of the current Chinese capital market, what is the overall trend?

In simple terms, the Sino-American financial war is the overall trend, international capital flows are the overall trend, our policy measures are the overall trend, and the subsequent development of China's economy is also the overall trend.

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Therefore, the topics we have been discussing in recent days are basically centered around the above aspects, analyzing what the more important overall trend is beyond the capital market.

Recently, we have had quite a few favorable developments, but they are mainly concentrated in policy measures. Next, please pay close attention to the favorable developments in two aspects. If they come to fruition, the stock market will really stabilize.

The first aspect is the Double 11 shopping festival. Why is this year's Double 11 so important? We introduced a few days ago that major e-commerce platforms have already launched large-scale subsidies for trade-ins, so this year's Double 11 might be a big deal.

The second aspect is how much foreign capital has come in? What is the rhythm like, and what operations have they made?

These issues are somewhat complex and require understanding a large amount of data to discover patterns. Let's focus on introducing the content in this area.We have said many times that the capital market is all about the game of capital, which, put simply, is a matter of how much money there is. When more money flows in, the stock market will rise; when more money flows out, it will fall.

This principle is quite simple, but how can we know how much money is flowing in?

At present, the money flowing in during this wave mainly includes several parts: retail investors, domestic institutions, and foreign capital. By looking at the money they are putting in, we can understand the market trend.

The first is retail investors, many of whom have been too anxious these days; the second is domestic institutions, especially state-owned ones, who are leveraging the central bank's policy tools; and the third is foreign capital.

Why do foreign funds come in last? Don't they want to make money? Of course not.

Firstly, it takes time and cost for foreign capital to move around. For example, a lot of funds ran out of the Indian stock market last week; they can't exit at a loss, right? They need to find the right timing to sell, and after exiting, they still need to find the right time to buy Chinese yuan in the Hong Kong offshore market.

On the other hand, the Americans are currently heavily engaged in financial stability, causing foreign capital to generally wait and see.

Of course, the Americans can't block it. As we said last week, the recent strange rise in the Japanese stock market indicates that some American capital is taking a detour through Japan to China.

In fact, foreign capital is also divided into two parts: one part is the capital that is already in the Chinese market, and the other part is the capital coming from abroad.Capital already present in the Chinese market, such as Goldman Sachs, Morgan Stanley, and BlackRock, which have been conducting business in China, have recently been increasing their holdings in A-shares and Hong Kong stocks.

Additionally, in recent months, foreign institutions have been continuously increasing their holdings of domestic bonds. By the end of August this year, foreign institutions held a staggering 4.52 trillion yuan worth of bonds in the interbank market. This money is also fluid and will not remain stagnant in bonds indefinitely.

The focus is on the capital coming from abroad; this is the incremental capital entering from outside, which has a more noticeable impact on the stock market.

Yesterday, we saw data showing that on October 11th, Barclays Bank cited the latest data from the Emerging Portfolio Fund Research (EPFR), indicating that in the week ending on Wednesday, foreign capital inflow into the Chinese stock market was approximately $9 billion, or about 63 billion yuan.

This scale of funds may not seem significant, at least considering the current rapid momentum of the Chinese stock market, where foreign capital appears too calm. This suggests that the United States' financial stability measures are taking effect.

However, another set of data from Barclays Bank shows that in the most recent week, the inflow of funds into emerging market stocks exceeded $40 billion, with the inflow into the Chinese stock market alone reaching $39.1 billion, of which $9 billion was foreign capital. This gives you an idea of how aggressive the Chinese stock market has been.

Furthermore, Barclays Bank also pointed out that investors are fleeing from Japan, marking the largest single-week outflow in 20 years. This confirms our conclusion from a few days ago: American capital is using Japan as a conduit to China to bypass the United States' financial stability measures.

Therefore, we can essentially conclude that the scale of foreign capital inflow this week will reach a peak.

However, is the influx of foreign capital always a good thing? Of course, it's not that simple; for every bull, there is a bear.Especially in the current market where confidence is unstable, foreign capital may find it easier to profit in the short term by short-selling rather than long-buying.

Therefore, an influx of foreign capital could potentially intensify the battle between bulls and bears, which increases the difficulty for retail investors to grasp market trends and naturally raises the risks.

However, one thing is certain: regardless of any market manipulations, the increasing inflow of money indicates that the overall trend of China's stock market will be upward in the near term.

So, when people ask if there has been any change at the 4000-point mark by the end of October, we tell them, there has been no change. But the current market volatility is significant, and the stock market carries risks; thus, the principle of cautious investment remains unchanged.