Chinese Equities Rebound as State Funds Pledge Support, Boosting Investor Hopes
Chinese equities experienced a much-needed rebound on Tuesday, bringing relief to investors who have been grappling with months of sliding prices. The surge came after state funds made a commitment to increase their share purchases, raising hopes that Beijing is ready to provide further support to stabilize the market.
One of the key factors that contributed to the rebound was the announcement by Central Huijin, an investment arm of China’s sovereign wealth fund, that it would expand its purchases of exchange-traded funds. This move instilled confidence among investors and signaled the government’s determination to address the ongoing sell-off.
In addition, the China Securities Regulatory Commission (CSRC) stated its intention to encourage institutional investors to hold A-shares for a longer period of time. The CSRC also vowed to crack down on “malicious” short selling and illegal behavior that hampers stable stock market operations. To further stabilize the market, the CSRC prohibited securities lending and short selling.
These measures had an immediate impact on the market. The onshore benchmark Chinese stock index CSI300 closed 3.2% higher on Tuesday, while the broader CSI500 index and its small-cap counterpart CSI1000 index both recorded gains of around 7%. The Hang Seng index also saw a significant rise of 4%, marking its biggest increase since July 25. The Hang Seng Tech index closed with gains of 6.8%.
The recent sell-off in China’s stock markets has highlighted the lack of confidence in the country’s economic outlook. Weak consumer demand and struggling industrial activity have contributed to this pessimistic sentiment. Despite previous efforts by Beijing to shore up the market and implement trading restrictions, Chinese markets have had a challenging start to 2024. Last week, the CSI300 plummeted 4.6% to reach a five-year low.
Retail investors who invested in derivatives called “snowballs” tied to small-cap stock indices, such as the CSI1000, suffered significant losses during the recent market rout. The market regulator revealed that over 100 listed companies had to inject additional cash or collateral into their margin trading accounts to avoid forced selling of stocks.
Redmond Wong, chief China strategist at Saxo Markets, commented on the complexity of the situation, citing a distressed property sector, fiscal constraints of local governments, and a lack of confidence in the private sector as contributing factors. Despite these challenges, Beijing has taken incremental steps to improve market sentiment but has refrained from implementing significant interventions or stimulus packages.
However, some market participants believe that more decisive action is necessary to restore confidence. Wang Qi, chief investment officer for wealth management at UOB Kay Hian in Hong Kong, stated that wishy-washy measures are insufficient to entice investors. He called for the national team to take the lead in buying up the market, emphasizing the need for more dramatic and direct support.
Zhang Qi, an analyst with Haitong Securities, echoed this sentiment, stating that a sustained rally would require more substantial efforts from Beijing. He emphasized that the key to reviving confidence lies in the recovery of the economy. Investors need to witness improvements in consumption, exports, employment, and incomes, rather than relying solely on statistical data.
As Chinese equities experience a much-needed rebound, investors remain cautiously optimistic about the future. The commitment from state funds and regulatory measures have provided a temporary boost, but the long-term stability of the market will depend on sustained economic recovery and further decisive actions from Beijing.