Capital Flows to Hong Kong A-shares, Is There Still a Chance in the Crypto Market?

[TL；DR]:

Since China released a series of favorable new policies in late September, both A-shares and Hong Kong stocks have surged, with trading volume and gains breaking historical records one after another.

As a barometer of capital flow, the USDT premium rate has been continuously discounted recently, reflecting signs of capital outflow in the crypto market.

There are differences between the crypto and stock markets in terms of volatility, market drivers, and investor sentiment, but the correlation between the two is gradually increasing.

Introduction

Since the “9.24” new policy, A-shares and Hong Kong stocks have experienced an epic surge that continues to this day, leading the global financial market. At the same time, the crypto market, which has always been known for its high volatility, is in a relatively quiet situation.

This article will deeply analyze the latest performance of the A-share market and the subtle changes it has caused in the crypto market, exploring whether the enthusiasm for the A-share market can spread to the crypto market.

A-shares and Hong Kong Stocks Surged Sharply, Attracting Attention

Since the Chinese government officially launched multiple heavyweight policy combinations, such as reserve requirement ratio cuts and policy interest rate cuts, on September 24 this year, the A-share and Hong Kong stock markets have experienced a rare surge, greatly mobilizing market participation enthusiasm.

Source: public information

As of September 30, the cumulative increase of the Shanghai Composite Index has exceeded 15%, with a monthly increase of 17.39% in September, the largest monthly increase in nearly 15 years. Although the stock market has fallen slightly since entering October, it is still in a highly volatile state.

Source: public information

In terms of trading volume, on the last trading day before the National Day holiday, the A-share market was exceptionally hot, with multiple data repeatedly breaking historical records, especially a single-day trading volume of RMB2.61 trillion. On the first trading day of October, the trading volume reached nearly RMB3.5 trillion, continuing to set a new historical high.

From the perspective of sentiment indicators, the A-share market sentiment index, constructed based on turnover rate, new shares issued by equity funds, and the proportion of financing purchases, reached its second-highest level this year in September, second only to March.

In addition, the ICBC Bank Securities Transfer Net Value Index reached 1.51 in September, marking the first positive value in nearly five months. This indicates a net inflow of investor funds into the securities market. Among them, the individual investor index reached as high as 1.47, indicating a surge in market sentiment.

In fact, on the eve of the market outbreak, A-share companies’ median price to book ratio remained below 2 times for a long time, at a low level in nearly 15 years, while the valuation percentile of the ChiNext Index was less than 8%. This provides fundamental support for funds to speculate, helped by favorable policies and marginal improvements in economic data.

Recently, Hong Kong stocks have also risen sharply, setting the best performance record for the same period in nearly a decade. Since the end of September, the Hang Seng Index has shown a significant upward trend, with market hotspots mainly concentrated in technology, finance, and consumption sectors. Among them, technology stocks have attracted much attention due to the recovery of the global technology industry and the valuation increase of technology stocks in the Hong Kong stock market. Financial stocks have performed outstandingly due to the overall rise in the Hong Kong stock market and increased investor confidence in the financial industry.

Source: public information

Similar to the high trading volume of A-shares, the Hong Kong stock market’s trading volume significantly increased from the end of September to early October. The average daily trading amount for September was HKD 169.2 billion, an increase of 77% from HKD 95.5 billion in August.

Despite this week’s pullback in the A-share and Hong Kong stock markets, the overall upward trend has not changed. At the same time, the booming stock market has also drawn attention to the drain on funds in the crypto market.

USDT Experiences Frequent Negative Premiums and Is There a Significant Outflow of Funds from the Crypto Market?

While the A-share and Hong Kong stock markets continue to heat up, the crypto market presents a completely different, bleak scene. Since Bitcoin hit a high of $66,500 on September 27, the price has fluctuated downwards and has fallen to $60,000 by the writing date.

As a barometer of capital flow, the USDT premium rate reflects signs of recent capital outflows. According to publicly available data, the US dollar’s current exchange rate is 7.01, while the off-exchange quotes from multiple trading platforms are only 6.94, with a negative premium rate as high as 1.1%.

Source: btc126.com

The so-called USDT premium refers to the deviation between the market price of USDT and its true value in US dollars. When a “negative premium” appears in the market, it often occurs against weakened market demand or limited liquidity, which usually means that the market is under significant selling pressure.

It is not difficult to infer that the emergence of negative premiums in USDT is likely related to speculative traders rushing to sell USDT to shift to the A-share market. They had to sell USDT at a discount to raise fiat currency faster, resulting in a decline in its market price and a negative premium.

However, the supply of stablecoins has increased by 36.25% overall in the past year, and there has been a net outflow of less than $1 billion since late September, accounting for less than 0.6%. The trend of loose liquidity in the crypto market has not changed yet.

Source: CoinMarketCap

The Stock Market May Not have Peaked Yet, But the Crypto Market Still has Prospects

Overall, based on the analysis of the phased bottom characteristics of the A-share market in the past 20 years, the strength of policy signals often exceeds market expectations, which has become a key and necessary condition for its stabilization and rebound.

Although the fundamentals of the current series of policy implementations have not yet been revealed, the short-term rise in the market is mainly driven by expectations and capital inflows, leading to overheated market sentiment. High-volatility markets are often accompanied by overreactions, so historical-level surges followed by corrections are both in line with technical requirements and reasonable.

Based on past experience, the recent downward adjustment can be seen as a correction rather than the end of the trend, and the peak of A-shares and Hong Kong stocks has not yet arrived.

Meanwhile, there are differences between the crypto and stock markets in terms of volatility, market drivers, and investor sentiment, but the correlation between the two is gradually increasing. In the process of coupling with traditional financial markets, the crypto market has become increasingly interconnected due to compliance processes such as spot ETFs and crypto laws. This has led to many crypto concept stocks being affected not only by assets such as Bitcoin but also by the overall operation of the stock market.

Source: public information

Furthermore, despite the sluggish crypto market, the 40% increase this year indicates that Bitcoin remains a leader among various assets. It can be expected that with the increasing global liquidity and risk appetite, the value of Bitcoin will gradually be discovered.

In short, with policy support and a large capital injection, the medium and long-term prospects of the A-share and Hong Kong stock markets are promising, while the crypto market, although currently facing uncertainty, still has potential in the long run. Investors should closely monitor market dynamics, make cautious decisions, and focus on the impact of the global economic environment, market sentiment, and policy changes on both.