Chinese Regulators to Brief President Xi Jinping on Efforts to End Stock Rout
Chinese regulators are set to brief President Xi Jinping on the ongoing stock rout in the country, signaling a potential increase in government efforts to stabilize the market. This news comes as Chinese stocks continue to rebound, with the CSI 300 benchmark closing 3.5% higher, marking its best day since late 2022. Small-cap equities, which have been hit the hardest during the rout, also saw a significant jump, with the CSI 1000 gauge up 7%, the most since 2008.
Traders and investors are hopeful that this meeting will result in new support measures to help end the stock rout. Over $7 trillion of value has been wiped off Hong Kong and China equities since their peaks in 2021, and previous attempts to stabilize the market have failed to boost investor sentiment. Stabilizing the stock market is crucial to avoid further damage to consumer confidence, especially as China enters the weeklong Lunar New Year holiday.
Li Weiqing, a fund manager at JH Investment Management Co., sees the meeting as an encouraging development. He believes that it shows the authorities are taking the plunge seriously and are doing everything they can to support the market. Li suggests that now is a good time to buy, as it seems like the government is committed to addressing the issue.
Prior to the news about the Xi meeting, there were several supportive announcements made throughout the day. Central Huijin Investment Ltd., a unit that holds Chinese government stakes in major financial institutions, vowed to buy more exchange-traded funds. Additionally, the securities watchdog stated that every effort will be made to maintain stable market operations. These announcements, along with the news of the meeting, have attracted foreign inflows, with overseas funds adding over 12 billion yuan ($1.7 billion) of mainland shares on Tuesday, marking the highest amount this year.
However, there is a risk that the outcome of the meeting may not meet expectations, leading to a renewed selloff. The Chinese stock market has experienced multiple false rebounds in the past, with short-lived recoveries quickly fading due to poor economic data and new policy risks. The 2015 equity crash serves as a reminder that rescue attempts may not immediately turn the market around. While authorities took measures to curb speculative trading and market manipulation back then, it took months for stocks to bottom out, and they peaked at a much lower level than before the crash.
Despite these challenges, President Xi has shown increasing involvement in the country’s financial and economic policies. He made an unprecedented visit to the central bank late last year, signaling his commitment to addressing the nation’s financial issues.
Chinese authorities have been working tirelessly over the past few months to develop market rescue measures. The securities regulator has been working on weekends, and the National Financial Regulatory Administration has held numerous meetings to discuss stabilizing capital markets. However, both organizations have yet to respond to Bloomberg’s requests for comment.
In recent weeks, officials have implemented tighter trading restrictions, including banning some quantitative hedge funds from placing sell orders and cutting stock positions in leveraged market-neutral funds. The securities regulator has also announced plans to guide brokerages in adjusting their margin call levels and maintaining flexible liquidation lines to limit forced selling.
Previous efforts to restore investor confidence have included curbs on short selling and state buying of shares in major banks. However, these measures have had limited success, as investor confidence has been affected by an economic slowdown and President Xi’s increased control over private enterprises.
Despite the recent rebound, Chinese equity benchmarks remain among the worst performers this year compared to global gauges tracked by Bloomberg. The CSI 300 hit a five-year low last Friday and is still down over 40% from its peak in 2021.
Xu Dawei, a fund manager at Jintong Private Fund Management, believes that the calling of a special meeting indicates the severity of the situation. He suggests that if there were to be a report from state media on this meeting, it would be a significant turning point, as it would demonstrate concerted actions being taken.
Overall, the upcoming meeting between Chinese regulators and President Xi Jinping has raised hopes for more decisive actions to end the stock rout. Investors are eagerly awaiting the outcome, as they look for signs of stability and a potential sustained rally in the market.