©Reuters. A car passes a display displaying the Shanghai and Shenzhen stock indexes near the Shanghai Tower and other skyscrapers in the Lujiazui financial district in Shanghai, China, on February 5, 2024. Reuters/Xihao Jiang
Written by Tom Westbrook and Summer Jen
SINGAPORE/HONG KONG (Reuters) – Chinese stocks are likely to fall from multi-year lows after state-backed buying continued for a second day in a row. Investors are questioning whether this support will last and are warning that the market will become unbalanced and unstable.
A so-called “state team” of Chinese state-backed investors, formed in the wake of the 2015 market crash, poured $17 billion into index-tracking funds last month, analysts said, adding that they poured $17 billion into index-tracking funds on Friday and Monday as the market fell. It is said that they have also accumulated funds.
On both days, the index plummeted to five-year lows before recovering at the same time as a surge in trading volume for blue-chip index funds.[.SS]
But analysts and investors say propping up the market with cash is unsustainable and will not bring about a lasting turnaround as long as the real estate sector remains depressed, weighing on consumer and investor confidence. ing. This challenge is also huge. The value of mainland stocks is nearly $9 trillion.
“This effect may be similar to what was observed during the 2015 boom-bust cycle,” said Dennis Yang, a professor at Virginia Darden's School of Business.
“Unless the fundamental problems of China's economy are addressed, short-term solutions will not be enough to restore long-term confidence among global investors.”
In 2015, economic conditions were much more favorable, so the effectiveness of the “varsity” hoarding is debatable, and in any case, it took many months for the market to find a bottom, and the blue-chip CSI300 It took more than five years to get back to the highs.
Now, analysts say similar buying has been evident for months, with S&P Global Market Intelligence tracking more than $17 billion in blue-chip tracking funds last month. However, there is no solution in sight to the core problems of growth.
“China's economy is shifting away from infrastructure and real estate investment and toward higher value-added industries,” said Ben Bennett, Asia Pacific investment strategist at Legal & General Investment Management.
“Recent stimulus measures have sought to ease the transition by focusing on symptoms such as slowing credit growth and stock market volatility. However, the effects of these policies are limited as the transition is still underway. It remains limited.”
i doubt it
The decline in the performance of the Chinese market is clear, indicating that investor confidence and patience are exhausted.
A number of market-focused support measures, such as restrictions on short selling and trade duty relief, have failed to stem the decline, as have many government statements promising support but lacking in detail.
Most major investors say they are waiting for spending measures to support household finances. There has been no official confirmation of a Bloomberg News report that a 2 trillion yuan stock market rescue fund is being discussed.
Michael Ashley Shulman, partner and CIO at Running Point Capital Advisors, said: “Consumers are facing multiple crises of confidence in debt, wealth and employment, and the It highlights important issues.”
“The effectiveness of market relief is questionable unless weak aggregate demand and deep-rooted problems in the real estate market are addressed,” he said. “Beijing's historic market intervention shows its effects are short-lived.”
Foreign investors sold 18.2 billion yuan ($2.5 billion) in Chinese stocks last month, marking the sixth consecutive month of capital outflows.
stocks fell for the sixth straight month, down 20%, while global stocks rose 5%. Small domestic investors are scrambling to buy funds that track foreign stocks.
It is true that there are speculators who believe that the cheaper Chinese stocks become, the more they are cheap. And the entry of state-backed investors could bend the market and open opportunities for them to follow the “state team” into index funds.
“The rescue package is disproportionate. It mainly rescues central (state-owned enterprise) stocks and blue-chip CSI 300 stocks,” said Pan Shichun, research director at Nanjing Risk Hunt Investment Management.
He recommends taking long positions in these state-owned enterprises and shorting smaller companies. While not exactly a bet on improvement, such a position can be profitable, at least for now. The CSI300 index ended Monday up 0.7%, while the small-cap index fell 6.2%.
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