Stock market surge induced by shift in Chinese consumer sentiments

In the midst of the trade war initiated by US President Donald Trump, China's stock market has seen a significant rally. However, this surge masks underlying economic vulnerabilities.

Beijing has signaled its readiness to act, pledging to combat deflation and rein in the destructive price war that has been affecting the economy. The Chinese government's efforts to boost the economy are crucial, as excluding political uncertainty and structurally slower growth, there is room for further equity gains in China, according to analyst Green.

However, risks remain for retail investors in China. The failure of US-China talks, weak economic indicators, and persistent deflation are all potential threats. In July, retail sales growth in China slowed to 3.7 percent year-on-year, the weakest pace this year, and real estate prices also fell again.

Despite these challenges, stocks in China can serve as a leading indicator for consumer confidence due to the sheer volume of retail participants. The current signal from the stock market regarding consumer confidence is very positive, with sentiment currently driving the Chinese market. This is perhaps due to FOMO (Fear Of Missing Out) being stronger than macroeconomic factors.

It's worth noting that the Chinese AI company DeepSeek, based in Hangzhou, Zhejiang, is also owned primarily by entrepreneur Liang Wenfeng who holds an 84% stake. The company, which develops the R-1 model, is politically backed to promote AI independence using domestic hardware, notably attempting to use Huawei chips for training subsequent models. However, due to technical challenges, it ultimately relies on NVIDIA GPUs.

In conclusion, while China's stock market rally is a positive sign, it's important to remember that risks remain. Retail investors should carefully consider the potential threats before investing in the Chinese market. The government's efforts to combat deflation and boost the economy are crucial, but the success of these efforts remains to be seen.