Shanghai, 23 January 2024 (TDI): China plans stock market support measures to stabilize a slumping stock market. The government’s concern about the recent market decline is evident in its contemplation of these potential measures.
Policymakers aim to mobilize approximately 2 trillion yuan ($278.53 billion), primarily from offshore accounts of state-owned enterprises, for a stabilization fund. Bloomberg News reported that the fund intends to purchase shares onshore through the Hong Kong exchange link.
Following the report, Chinese stocks experienced an initial rise but later reversed course, slipping lower and ultimately remaining broadly flat. The blue-chip CSI300 Index (.CSI300) hovered close to a five-year low, while the Shanghai Composite Index (.SSEC) stayed below the psychologically significant 2,800-point mark.
China’s stock markets had a wretched start to the year, with patchy economic growth. A renewed slump in home sales last week solidified foreign investors’ resolve to steer clear.
Chinese Cabinet Decision
Following a Monday meeting chaired by Premier Li Qiang, the cabinet announced plans to step up mid- and long-term fund injection into the capital market. The objective is to strengthen stability and promote the healthy development of the market. This report came after the cabinet’s decision.
“China’s stock market package is a welcome measure and shows increasing responsiveness from the authorities. But at under 2% of its GDP, we fear this is still inadequate,” said Aninda Mitra, head of Asia macro and investment strategy at BNY Mellon Investment Management.
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Chinese stocks amid post-pandemic recovery
Global money managers, who have been selling Chinese stocks amid the post-pandemic recovery slowdown, assert that a substantial amount of time or significant stimulus is required to rectify the property sector.
At one time, the property sector accounted for a quarter of the economy. The managers emphasize that such changes are necessary to alter their current perspective on investing in Chinese stocks.
In a report last week, Morgan Stanley revealed that overseas funds, primarily European active funds and Hong Kong passive money, have sold approximately $1.6 billion in Chinese equities this year. The data underscores a trend of divestment from the mentioned regions.
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