Between A shares and H shares, Bank of America Securities believes that A shares are more cost-effective at present. The foreign bank even believes that it is not impossible for A shares to experience a bull market like the one in 2014-2015. Because residents have accumulated a large amount of savings in the past few years, the amount of funds that can enter the stock market is very large. "Before the bull market started in 2014, residents' savings increased by 15 trillion yuan. Before this round of market rebound, residents' savings had increased by 40 trillion yuan. In other words, there is more money waiting to enter the market," said Bank of America Securities.

It is worth noting that most Asian markets, except India, had completed their adjustments before the Chinese stock market rebounded. Since May, the Japanese market has seen an outflow of $31 billion, while Taiwan has suffered an outflow of $18 billion since its May high. Bank of America Securities therefore judged that if the Chinese market continues to rise, India may become a place for capital outflow.

KWEB has received net purchases of over 10 billion yuan

As of October 3, in the past week, two of the top five ETFs listed in the United States that attracted the most capital inflows were Chinese ETFs, namely KWEB, which tracks the Internet Index, and FXI, which tracks the FTSE China 50 Index. Data from the ETF tracking website (ETF.com) showed that in the week ending October 3, KWEB received net purchases of more than US$1.4 billion, and FXI received net purchases of US$1.251 billion. Chinese ETFs have ranked among the top five in terms of net capital inflows, which has rarely happened in the past three years.

With the surge in ETF net value and the inflow of funds, KWEB, the popular ETF, has expanded to US$7.35 billion. Since September 23, KWEB has received net purchases of US$1.811 billion, equivalent to RMB 12.7 billion. Branden Ahern, CIO of KraneShares, the issuer of KWEB, said in an interview with the media on October 3 that Chinese stocks still have room to rise.

Slow liquidation of short positions

The Chinese market is booming, but overseas short positions are being closed at a slower pace.

Data from S3 Partners, a website that tracks short positions, shows that as of October 1, short sellers of overseas Chinese stocks have recorded losses of nearly $7 billion. The report from S3 Partners stated, "Since September 23, China has been actively injecting stimulus measures into the economy to reverse the situation in the real estate industry, provide support to the market, and boost economic confidence. As a result, the CSI 300 Index has recorded a stunning increase since its low point this year on September 13. Surprisingly, despite the general rebound in US-listed Chinese mainland/Hong Kong stocks, short sellers have not yet closed their positions on a large scale, and they are suffering paper losses."

On October 1, Alibaba's short position amounted to nearly $7 billion, and Pinduoduo's short position amounted to $4.1 billion. The two Internet stocks are the Chinese concept stocks with the largest short positions.

Short sellers usually borrow bonds to sell first, and then buy them at a low price to make a profit after the stock price falls. Today, stock prices are soaring in the Chinese market, and short sellers are recording significant paper losses. In this case, why don't short sellers close their positions and stop losses in time? The equity investment director of a private equity firm in Hong Kong explained that there may be two reasons behind this. First, it is due to the inertia of thinking formed by investors in the past three years. Every time Chinese stocks rose in the past three years, it provided short-selling opportunities for overseas investors. This time, some investors are following the same thinking. Second, some hedge funds aim to generate alpha that is not affected by market fluctuations. No matter what the market is like, their net position remains above 20%. This group of hedge funds will not chase the market after it rises.

S3 partners' report pointed out that if the Chinese market continues to rise, it is expected that there will be a large-scale short position liquidation in Chinese concept stocks, which will further push up the stock price. Alibaba's stock price may be the most affected. After this round of rise, Alibaba's short position has increased. When shorts begin to liquidate on a large scale, liquidation buying and long buying in parallel may intensify the slope of its stock price increase.

Keep a close eye on the “Golden Week” data

Since September 24, the stimulus plan announced by regulators has stimulated global funds to rush into Chinese assets. BlackRock has upgraded its rating of Chinese stocks to moderate overweight. However, some investors are still cautious. For example, Rajiv Jain, fund manager of GQG Partners Emerging Markets Equity Fund, said that this round of rebound may be short-term behavior.

Many overseas institutions believe that the subsequent trend of Chinese assets depends on subsequent stimulus measures. Investors are waiting for data from the National Day "Golden Week" to determine whether consumption has rebounded.

Britney Lam, head of long-short strategy at Magellan Investment Holdings Ltd., said, "In the coming weeks, Chinese authorities may announce more consumption-oriented stimulus measures, such as measures related to social welfare and social security. The global asset allocation shift back to the Chinese stock market may become an important driving force for Chinese assets." Raymond Ma, chief investment officer of Invesco China and Hong Kong, believes that some stocks have risen too much since September 24.