China's Shanghai Composite rises 0.5%, headed for decade high

China's Shanghai Composite rises 0.5%, headed for decade high

The Shanghai Composite Index (SSE Composite) surged 0.5% on Thursday, July 2, 2025, to 3,690.88, marking a significant milestone as it inches closer to its decade-high level. This rally was driven by strong gains in technology stocks and renewed investor appetite, according to market analysts.

The index, which represents the performance of all A-shares and B-shares listed on the Shanghai Stock Exchange, has been buoyed by bullish sentiment and incremental demand-side stimulus measures. These measures, which include interest subsidies for consumption loans and mega dam projects in Tibet, have contributed to a positive outlook for the Chinese economy.

The midday break saw the blue-chip CSI 300 index rise by 0.5%, with the tech-focused STAR50 index leading the gains, up 1.8%. The semiconductor index also surged, climbing 2.5%, while the insurance sector saw a 2.6% increase. This upward momentum reflects a growing risk appetite among investors, as margin buying surpassed 2 trillion yuan, the highest level seen since the 2015 bull market.

External risks, such as U.S.-China tariffs, have been largely defused, with the official extension of the U.S.-China tariff truce until mid-November. This has contributed to a more optimistic view of the Chinese economy, as reflected in the recent survey of Asian fund managers, which indicated an increased enthusiasm for the Chinese market.

The Hang Seng Index in Hong Kong, a major benchmark for the Asian market, weakened by 0.1% to 25,597.85. However, market heavyweights like Tencent briefly touched HK$600 per share, a level not seen since 2021, following a 15% revenue growth in the last quarter, driven by strong gaming performance.

Despite the recent gains, the Chinese stock market continues to face challenges. The Shanghai Composite Index is still valued at $11 trillion, but it has significantly underperformed compared to the U.S. market over the past decade. A $10,000 investment in the CSI 300 would have yielded only an additional $3,000 over the last ten years, compared to a $30,000 return in the S&P 500 [4].

Structural issues, such as the original design of the market to funnel savings into state-owned enterprises, have contributed to weak investor returns. Recent regulatory improvements, including stricter IPO screening and higher dividend payouts, have had a limited impact compared to global standards. Authorities are now balancing between financing crucial tech sectors and protecting investor interests [1].

In summary, the Shanghai Composite Index's 0.5% rise on Thursday marks a significant step forward, driven by strong technology gains and renewed investor confidence. However, the market continues to grapple with structural challenges and underperformance compared to global benchmarks.

References:
[1] https://www.indexbox.io/blog/chinas-stock-market-struggles-to-boost-consumer-spending/
[2] https://www.rttnews.com/3566676/china-bourse-resistance-expected-at-3700-points.aspx
[3] https://www.tradingview.com/news/reuters.com,2025:newsml_L4N3U607J:0-shanghai-composite-index-flirts-with-3-700-level-as-bullish-mood-persists/
[4] https://scanx.trade/stock-market-news/global/china-s-11-trillion-stock-market-lags-behind-us-despite-reform-efforts/16968605