Confidence seeps back into markets

Recent days have seen stock markets on the Chinese mainland inundated with a rush of foreign capital. From July 24 to 30, nearly $2.14 billion in overseas money flowed into onshore equities, the largest weekly inflow in six years.

There are several reasons behind this surge. For starters, investment sentiment has been buoyed of late by economic data which hint at the resiliency of the mainland economy in the face of sweeping structural adjustments. Additionally, the People's Bank of China recently pledged to maintain its monetary policies, a position which many believe bodes well for local financial markets. On top of this, efforts to connect onshore A-share markets with exchanges in Hong Kong indicate regulatory determination to expand the capital market.

While this confluence of factors is certainly tempering investor optimism, it's still too early to suggest that this is just the beginning of a bull market. Nevertheless, local bourses could benefit greatly from any increase in investor confidence.