Chinese stocks closed on their worst week in years: strong volatility and distrust in the future of the economy

A sense of panic gripped Chinese investors on Friday as stocks jumped sharply in the final hours of trading before closing at a five-year low.

Traders were unable to identify any new news behind the move, but cited concerns about forced sales by leveraged shareholders as one of the reasons for the sudden surge in profits. Loss in local markets.

The subsequent rally, which coincided with net flows from foreign investors turning positive during the day, could not prevent the CSI 300 index from ending the week with a loss of 4.6%, its biggest since 2022. shanghai It fell 6.2% in its worst week since 2018.

Sentiment was already weak this week as investors digested the US bill Wuxi Apptech Company, And brought geopolitical concerns to the fore. This week’s liquidation order for China Evergrande Group It was a reminder of how the housing crisis is dragging down the world’s second-largest economy.

“As someone who is optimistic all year round, I also get nervous and start becoming pessimistic.”said Xu Dawei, a fund manager at Jintong Private Fund Management in Beijing. “Looking at the trading trajectory, the free fall we saw this afternoon indicates forced selling, and I fear this will spiral downwards, leading to further margin calls.”

The CSI 300 index fell more than 3% at one point before closing down 1.2% on Friday. indicator shanghai composite This also reduced his losses.

Chinese authorities have tried to ease the crisis, increasing monetary stimulus and promising to maintain spending this year despite a slump in the housing market that has hit key sources of government revenue.

However, these promises and measures have proven inadequate to overcome the crisis of confidence. Having suffered repeatedly over the past few years, investors now have little confidence in the market’s prospects.

The continued decline has raised fresh concerns about a wave of margin calls as shares tumbled in value. The fear is that positions may have to be liquidated if your margin trading accounts are not replenished.

The outstanding amount of marginal debt fell to 1.49 trillion yuan ($208 billion) as of Thursday. That puts it on track for its biggest weekly decline since April 2022, when the national benchmark index fell nearly 5% in a single day.

Concerns that stock indexes have fallen to levels causing losses to the popular snowball derivatives have also unsettled investors in recent weeks.

“The market is grappling with liquidity issues, with pressure points snowballing one after another, from margin calls and rising numbers of equity pledges,” said Daisy Lee, fund manager at EFG Asset Management HK Ltd.

Traders attributed Friday’s sharp decline to possible intervention by state funds.

“State funds bought shares as the index fell sharply to below 2,700 in afternoon trade.”Shen Meng, director of investment bank Chanson & Co., said, referring to a key level for the Shanghai Composite. “The decline forced state funds to intervene to stabilize the market.”

State funds have tried to calm sentiments before: Central Huijin Investment Limited It was revealed in October that it had bought exchange-traded funds and vowed to continue increasing its stake.

Foreign investors, who had previously been withdrawing, became net buyers of mainland stocks, adding 2.36 billion yuan by the end of the day. They were selling relentlessly in the new year, extending the January sales streak to a record sixth straight month.

“I don’t remember the market being so nervous since 2015; “Although this liquidation is not as drastic as before, the feeling is still just as sad and painful.”Li Xuetong, fund manager of Shenzhen Enjoy, said. Investment Management Company “Anecdotally, I am also hearing an increased number of margin calls. There should not be much scope for downside here and generally the upside is also strong at this level.”

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