China’s stock market has never lagged so far behind the United States. In an effort to save the economy, officials of the Asian giant plan to create a stabilization fund of about 2 trillion yuan (US$278 billion) to buy shares from the continent through offshore trade links. But investors are not convinced.
And this Wednesday, the government decided to drastically cut banks’ national reserves in order to inject about US$140 billion of cash into the banking system. This happens when the world’s second largest economy Still struggling to recover from the pandemic And at the same time must face a “perfect storm” created by the real estate crisis, high levels of local government debt, a declining population and shrinking workforce, and weak global demand.
Chinese government feels market pressure
Over the past three years, nearly $6 trillion has disappeared from the value of Chinese and Hong Kong stocks, causing considerable panic among investors around the world. The worst thing is that the decline does not stop and, therefore, the disbelief does not stop either: the Hang Seng index has fallen 10% so far in 2024 before this Wednesday’s rise, while the Shanghai Composite and Shenzhen index components are down 7% and 10%. have fallen. Respectively.
At a meeting on Monday, China’s Premier Li Kiang ordered the State Council to find ways to attract more long-term investors into the country’s capital markets. According to Xinhua agency, Li stressed the need to “improve the basic system of the capital market, pay more attention to the dynamic balance of investment and financing, and vigorously improve the investment quality and value of listed companies.” ,
Lee had tried to calm business leaders gathered in Davos last week. ,Choosing the Chinese market is not a risk, but an opportunity“, he assured. “We open our arms and sincerely welcome companies from all over the world to continue investing in China, and we will continue to work hard to create a first-class international, legal and market-oriented business environment.”
Investors like to abandon ship
But with a record series of huge losses reminiscent of the last Chinese stock market crash of 2015-2016, investors can’t help but be skeptical.
“Investors are abandoning Chinese stocks Because the overall economic policy and political environment has deteriorated, “Regaining trust will require major changes on both fronts,” George Magnus, a researcher at Oxford University’s China Center, told Bloomberg.
“given How cheap have Chinese shares become?“We would not be surprised by a near-term uptick in sentiment and prices,” said Aninda Mitra, head of macroeconomic strategy for Asia at investment manager BNY Mellon. “But we doubt their sustainability unless they are complemented by a comprehensive package of far-reaching reforms.”
It’s hard to deny the feeling of disbelief when the past three years were “undoubtedly a disappointing period for investors and participants in the Chinese stock market,” Goldman Sachs wrote in a note cited by CNN on Tuesday. “China (is) currently trading Mutual fund mandates stalled valuations and less than a decade allocation,
Goldman Sachs says Beijing implemented policies only piecemeal last year and that is not enough. “The flexibility of conventional macroeconomic policy so far Has not lived up to expectations“He said. “A shift in the playbook from gradual easing to a more aggressive, high-impact approach may be necessary to reverse the negative narrative in the market.”
In particular, Goldman Sachs analysts believe that “effective government support” is needed to prop up failing property developers and stimulate housing demand to resolve the current crisis. real estate crisisThe pivot of many of China’s economic problems.
“The rebound is not necessarily sustainable”
Although China said its economy would grow 5.2% in 2023, high by most standards, the consumption boom expected after reversing its “zero Covid” policy in late 2022 has not materialized. a shrinking populationreduced by two million) and an aging workforce exacerbates the headwinds.
Michelle Lam, China economist at the group, told Bloomberg, “The experience of 2015 shows that even when the government increases purchasing, unless we have a big stimulus package to address economic problems, “The rebound is not sustainable.” Societe Generale.
With 220 million, Retail investors account for about 60% of China’s stock market turnover, Without concrete guarantees of an economic recovery, some of the world’s biggest financial managers have already opted out of the market because they consider the risks too high, Bloomberg reports.
“Ultimately, even if the money is enough to sustain the market, it will not be enough to offset any other problems China faces, such as US sanctions, the weakness of the economy and unemployment,” said Way-Sern Ling, managing director of Union Bancaire Privé. Doesn’t solve it.” ,
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