China stock market is grappling with a brutal downcycle that has erased over $6 trillion in valuations since 2021, leading to increased confusion among investors and analysts.
According to a Business Insider report, markets in China and Hong Kong experienced extended declines, only recovering some losses after reports surfaced that Beijing is contemplating a massive 2 trillion Chinese yuan (approximately $282 billion) package to stabilise the market.
The Hang Seng Index in Hong Kong, which had fallen about 10 per cent year-to-date, showed a 2.6 per cent rebound as of 5 p.m. local time on Tuesday. However, the CSI 300, tracking 300 Shanghai and Shenzhen-listed stocks with the largest market capitalisations, remained 0.4 per cent higher but was still down 6 per cent for the year.
Investors are on edge as China’s signals on the economy appear to be perplexing, especially after the People’s Bank of China (PBOC) kept benchmark lending rates unchanged, disappointing those hoping for a rate cut to stimulate the broader economy.
“There has been increasing confusion over Beijing’s policy stance on the economy,” noted Nomura economists in a Monday note, reflecting the challenges of interpreting China’s signals.
While the largest state-owned banks reduced deposit rates in December, anticipating a similar move by the central bank, such adjustments did not materialise. Top officials’ statements indicate Beijing’s reluctance to prioritize short-term growth at the expense of increasing long-term risks, emphasising a commitment to a more sustainable and stable economy after decades of rapid growth.
China faces economic challenges as it grapples with post-pandemic recovery, a property crisis, and a demographic problem marked by a record-low birth-rate. The nation’s population contracted for the second consecutive year in 2023.
President Xi Jinping’s administration seems to be dialling back some aggressive measures, as seen in regrets expressed over a private-sector crackdown and damage control efforts after new draft rules on video gaming triggered an $80 billion market meltdown.
Despite the ongoing struggles in China’s stock market, some experts see opportunities ahead. Amundi, Europe’s largest asset manager, maintains a long-term positive view on Chinese equity, considering it a core component of a strategic asset allocation. They cite appealing valuations and attractive longer-term rewards as reasons to remain optimistic amid the current challenges.