China's stock markets divided, but still have enough capital

China’s stock markets are divided on Thursday after rapid surges in the past trading days, but the increased trade volume represents ample capital liquidity.

The benchmark Shanghai Composite Index gained slightly by 0.14 percent to close at 3.106.42, with intra-day fluctuation to 3,074.98. 

But the smaller Shenzhen Component Index dropped 0.23 percent to close at 9,678.11. The GEM, or Growth Enterprise Market, also decreased 0.48 percent to 1,692.42. The drop of Shenzhen and GEM markets, the first time this week, and slow growth of the Shanghai stock market, represents the indexes reaching key positions. 

The markets became relatively cautious as some investors sell shares to lock in profit, analysts said.

The trade volume of Shanghai and Shenzhen markets totaled 1.16 trillion yuan (US$173.1 billion). That's slightly higher than the previous day’s volume of over 1.1 trillion yuan, which was a high not seen since November of 2015.

The still-growing Shanghai index and increased trade volume represent investor confidence and ample liquidity. 

Finance assets, including shares, have become major assets for Chinese families, as opposed to traditional property assets. It's a long-term trend even with short-term fluctuation, Guosen Securities said in a report.

China should widen and relax share variety and investment channels for overseas investors to invest in domestic stock markets, UBS said.

New York-based MSCI said it will remove Han’s Laser Technology Industry Group Co from its China indexes after Friday’s close because the stock has reached the 28 percent ownership limit that halted orders. Midea Group Co, which is also close to the ceiling allowed for overseas holdings, will see its weight adjusted due to concern over accessibility, effective from March 11, Bloomberg reported.

The MSCI announced recently it will quadruple the weight of China A-shares on their global indexes, from 5 percent to 20 percent, starting May. That will lead to a US$67 billion fund inflow to the A-share market this year, according to UBS Securities' estimate.

In the morning session, the Shanghai index dropped to the line of 3,075, representing a 1 percent drop. But the index rebounded in the afternoon, with securities and tech shares leading the surge.

The increased trade volume and coming tech innovation board will bring direct benefits for Chinese securities, analysts said.