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Hong Kong
CNN
—
It’s been a roller coaster week for stock trading in mainland China and Hong Kong.
Major market indexes plunged on Monday, with year-to-date losses ranging from 7% to 10%, extending the $6 trillion crash that began 2021.
Hong Kong’s Hang Seng Index (HSI) then rebounded to end the week up 4.2% after a series of unusual interventions and announcements by concerned Chinese authorities, while the blue-chip Shanghai Shenzhen CSI300 rose by 2.0% for the week. % increase was recorded.
Will this rise end the country’s three-year market collapse? Analysts say not yet. Many economic problems remain, including record lows in real estate, deflation, debt, falling birth rates, and a shrinking workforce, which will limit long-term gains.
“Over the past 48 hours, China has announced a flurry of measures to support its economy and financial markets,” Nomura analysts said Thursday. “Given very low valuations, very light investor positioning and a technically oversold market, these measures are likely to stabilize stock market sentiment and potentially support a recovery in Chinese stocks. I think there’s even a possibility that it could help.”
China faces a number of economic problems, including rising debt levels and worsening demographic trends. Beijing’s shift toward ideologically driven policies has also scared off foreign businesses and investors and worsened relations with the United States.
Unless progress is made to address these deep-rooted challenges, investors are likely to remain on the sidelines and markets will continue to be volatile.
“We believe that for a sustained rise in Chinese stocks, China needs to address the core of these concerns, primarily real estate sector issues and US-China tensions,” the analysts added. .
Cost Photo/NurPhoto/Getty Images
Aerial photo showing Shanghai Financial Exchange Square in Shanghai, China, December 5, 2023.
Measures taken by the Chinese government this week include: The stock market boost was a surprise as it marked a sharp turnaround from last week, when Premier Li Qiang dashed hopes of a massive economic stimulus package in a speech in Davos, Switzerland.But that was before Stocks plummeted.
On Tuesday, Bloomberg reported that Chinese authorities are considering ordering state-owned companies to buy 2 trillion yuan ($282 billion) worth of stocks using funds held in offshore accounts. .
The next day, in an unprecedented move, regulators announced they were considering evaluating the performance of top executives at state-owned enterprises based on their stock market value.
A spokesperson for the State-owned Assets Supervision and Administration Commission said the move would encourage management to “pay more attention” to their companies’ stock prices and take “methods such as increasing stock holdings and stock buybacks to stabilize market expectations.” He said the purpose was to teach people how to use it. Reporters in Beijing.
On the same day, Li Yunze, director of the recently established National Authority for Financial Regulation (NAFR), vowed to further open up the $64 trillion financial industry to foreign investors at an international financial conference in Hong Kong.
Florence Lo/Reuters
On March 3, 2023, Ban Gongsheng, Governor of the Central Bank of China, speaks at a press conference in Beijing.
Hours later, People’s Bank of China Governor Ban Gongsheng unexpectedly cut the amount of cash the central bank needs to hold in reserves, reducing long-term liquidity by 1 trillion yuan ($141 billion). It was announced that there is a possibility of obtaining To the economy.
“All of these measures are unexpected and likely triggered by the significant declines seen in the stock market recently,” Nomura analysts said, adding that stronger measures would be taken. . It was likely that it would continue.
The measures were successful. By the end of Thursday, HSI had risen for the third day in a row, rising a total of 8.4%. CSI300 rose 4% over the same period.
Exchange-traded funds (ETFs) linked to Chinese stocks saw a massive $12.6 billion in inflows in the seven days ending January 24, according to a Citi survey of global fund managers. did. Last week, $2.3 billion flowed out of these funds.
Chinese government’s determination to support the stock market Analysts at Enodo Economics said on Friday that this has been a success and the rally could continue.
“The rise in stock prices could last for several quarters, especially [it] “This will lead foreign investors to reassess their positions on China to a significantly underweight position,” they said.
Still, investors have been avoiding Chinese stocks for quite some time, concerned about the country’s economic outlook.
As of January, mainland China saw its sixth straight month of capital outflows, with foreign institutional investors selling a total of $30 billion in stocks listed on mainland exchanges, according to an HSBC study on Friday.
“We are not considering market rescue measures.” [in recent days] It could change the fundamentals of the economy, namely the weakness in aggregate demand,” said Raymond Yong, chief economist for Greater China at ANZ Research.
Deflation is plaguing China’s economy, which has been suffering from low prices for months. The country faces the prospect of a vicious cycle in which lower demand leads to lower investment, lower production, and lower incomes, which in turn leads to lower demand.
“Such a large-scale reflation strategy [at] “This is needed by the end of 2015 to avoid claims of price deflation,” Yong said, referring to a series of stimulus measures rolled out over several months to support the economy. It included a number of initiatives aimed at reviving homebuying.
He called the relief measures announced this week “piecemeal” and “reactive” and said they would not be enough to solve economic problems in the long term.
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