In recent days, the performance of the A-share market has been notable for its sluggish trading volume, signaling a potential period of recoveryThis phenomenon often indicates that the market is nearing a bottom and a short-term rebound could be imminent.

During the recent Forbes Global CEO Conference in Singapore, Jenny Johnson, the president of Franklin Templeton Investments, addressed some of the prevailing pessimism surrounding the Chinese investment marketShe remarked that while there may be some turbulence in the investment landscape, inevitably, it would bounce back as resiliently as a rubber band once the timing is right.

Although the inflow of capital from foreign investors has seen some outflow since last month, historical data shows that two consecutive months of net outflow from North-bound capital has only happened twice before, in April and May of 2019, when the market saw declines of 0.4% and 5.84% respectively

Despite these fluctuations, the Shanghai Composite Index continued upward with annual gains of 22.3%, 13.9%, and 4.8% from 2019 to 2021.

This recent maneuvering by foreign capital may resemble the chaotic flight patterns of "headless flies," as one investor put it, suggesting a lack of directionThe underlying issue seems to be that many funds are nearing the end of their five-year operating periods, resulting in low overall returns and significant redemption pressures from clients.

A historical perspective reveals that foreign investment in the Shenzhen market began gaining traction only after 2017. If we take December 5, 2016, when the Shenzhen-Hong Kong Stock Connect was launched, the Shenzhen Component Index closed at 10,781.3 points

Fast forward to September 15 this year, it stood at 10,197.6 points, marking a decline of 5.41%. During the same stretch, the renminbi depreciated against the US dollar by 5.44%, leading to an aggregate loss of about 10%. In contrast, the S&P 500 soared 98.8%, attributed to a mix of strong capital inflows and soaring valuations, beautifully packaged by Wall Street's portrayal of U.Seconomic growth.

Since China's reform and opening up, the U.Shas recorded higher GDP growth than China in seven years, which were 1986, 1987, 1990, 1993, 2016, 2019, and 2022. This was primarily due to the speed of appreciation of the U.Sdollar exceeding the differential in GDP growth between the two countriesInterestingly, this correlation doesn't hold strongly with A-share movements

The Shanghai Composite Index debuted at the end of 1990, showing mixed annual performances during the years 1993, 2016, 2019, and 2022 with gains of +6.84%, losses of -12.3%, +22.3%, and losses of -15.1% respectively.

Year-to-date, the renminbi has depreciated by 5.18% against the dollarReflecting on the present, China's economic growth this year did not rebound sharply like it did in 2009, largely due to disruptions from the pandemic years of 2020 to 2022, which significantly impacted population dividends, income expectations, and wealth perceptions.

In light of the current backdrop, it is plausible to anticipate that more rescue measures will ensue, which may catalyze an uptick in the A-share market

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Notably, since September 15, the central bank has lowered the reserve requirement ratio by 0.25 percentage points, expected to release liquidity in the range of 500 to 600 billion yuanHistorical data reveals that following 24 instances of reserve requirement cuts since September 15, 2008, the Shanghai Composite Index experienced positive returns 54.2% of the time within five days.

Compared to the closing prices on August 25, the performances of the Shanghai Composite Index, the CSI 300, and the ChiNext Index were +2.04%, +0.6%, and -0.6% respectively by September 14. These figures indicate that the policy efforts to stabilize the market have not fully mitigated the overcorrection in weaker sectors, with market confidence still on the mend.

It’s also notable that on September 8, trading volume in the Shanghai market hit 270 billion yuan, marking the lowest volume so far this year

By September 14, the ChiNext Index recorded a new yearly lowThis raises the question: Who is aggressively shorting the market? That day, northbound capital saw a net outflow of 6.4 billion yuan, with a significant part attributed to the sale of shares in Contemporary Amperex Technology Co., Ltd., which totaled 780 million yuanSpeculation suggests that expectations for Chinese electric vehicle orders in Europe might fall short.

In comparison to its peak in 2021, the stock price of Contemporary Amperex has adjusted by 43.6%, with its dynamic P/E ratio dropping to 22.8. While the company's half-year profit surged by 154%, questions arise whether such a high-growth stock has been mispriced by institutional investorsHowever, the continuous decline in such leading A-shares could signal that the market is approaching its bottom.

Recently, international investment banks have begun expressing interest in bottom-fishing within the A-share market