Bitcoin, Asian Equities May Be Losing Capital to China Stocks

As a seasoned researcher with over two decades of experience navigating global financial markets, I have seen my fair share of market shifts and trends. The recent surge in Chinese stocks has been nothing short of remarkable, and it seems to be drawing capital away from cryptocurrencies, including Bitcoin.

China’s stock market, which had been struggling, has seen a revival since late due to the numerous stimuli measures rolled out by Beijing.

However, this increase might be drawing investment away from the crypto market, limiting Bitcoin‘s potential growth (as it is the largest cryptocurrency by market value) and other Asian markets, as suggested by analysts.

Danny Chong, co-founder of the multi-staking protocol and Digital Assets Association Singapore, explained to CoinDesk via email that the recent rise in Chinese stocks, fueled by the stimulus package and investor activity over the national holiday week, presents a carefully weighed risk-reward opportunity for experienced investors. Despite a 3-5% fee associated with converting USDT (stablecoin) into equities, the possible return of up to 50-70% makes this move a strategic decision.

In simpler terms, the Beijing Bazooka (a term often used for significant stimulus measures taken by the Chinese government) is also acquiring funds from other Asian stock markets. To put it another way, Eric Yee, a senior portfolio manager at Atlantis Investment Management in Singapore, stated to Bloomberg that they are reducing their existing holdings (long positions) in Asian stocks to finance purchases within China.

Starting from September 24th, the Shanghai Composite Index has climbed more than 20%, reaching a peak not seen since May 2023. Similarly, the Hang Seng China Enterprises Index, which includes Chinese stocks listed in Hong Kong, has surged over 25%. This information is based on data from TradingView.

As an analyst, I observed a surge in market activity following the unveiling of stimulus measures. These measures encompassed reductions in interest rates, bolstering liquidity for equities, injecting capital into the banking sector, and a commitment to uphold property values.

The massive financial stimulus worth over 7.5 trillion yuan (CNY) is generally seen as extremely positive for bitcoin and other high-risk investments. Interestingly, despite this stimulus, the price of bitcoin has stayed at approximately $64,000, continuing a six-month period of stability between $50,000 and $70,000.

Temporary shift

As per Chong’s assertion, it’s expected that the shift in focus away from cryptocurrencies could be short-lived, and ultimately, investors may revert back to investing in digital currencies.

According to Chong, this temporary change is probably due to the current surge in Chinese equities. After this peak settles down, there’s a strong possibility that capital will flow back into cryptocurrencies. This situation underscores the evolving perspective of investors who are increasingly open to diversifying their investments across various asset classes in order to maximize their returns.

Market experts generally think that Beijing’s recent stimulus measures might not fully address the underlying economic problems, and thus may not sustainably boost the rally in Chinese stocks.

Beyond the temporary optimism caused by current measures, they may lose their impact unless underlying problems are solved. The primary issue is restoring the health of financial institutions, particularly banks. Until this is achieved, efforts to increase lending and risky borrowing will probably be unsuccessful,” TS Lombard advised clients in a note dated Oct. 2.

The company noted that the recent actions only represent 1.5% of China’s total economic output (GDP), which is significantly less than the 32% in 2008 and 22% during 2015-2016. They emphasized that the effects from this stimulus are expected to be relatively minor compared to previous instances.

Last week, BCA Research expressed a comparable viewpoint, suggesting that the upward trend in Chinese stock market might not sustain its momentum.