By
Tokoni Uti
January 23rd, 2024
The ripple effect of the Chinese market plunge has extended to other major Asian markets, with Japan’s Nikkei 225 and South Korea’s Kospi also experiencing declines.
China’s stock market has hit a significant low not seen since the pre-pandemic era, rattling investors as the country grapples with various economic challenges and regulatory scrutiny.
The country’s CSI 300 index, which tracks major Shanghai- and Shenzhen-listed stocks, saw a significant drop of 1.3 percent, settling at approximately 3,463 points. The sharp decline has brought the benchmark to its lowest point since 2019. In dollar terms, the gauge has recorded an overall decrease of around 15 percent since the beginning of the year.
Economic Deceleration and Default on Dollar Debts
According to a South China Morning Post report, the recent slump is primarily attributed to a combination of factors, including slowing economic growth, a liquidity crisis in the property sector, and mounting geopolitical tensions.
China’s initial successful handling of the pandemic had led to a surge in equity markets, but the subsequent economic deceleration and defaults on dollar debt by Chinese developers have caused a major sell-off.
Compounding the situation, worsening relations between the United States and China have led global funds to reevaluate their investments in Chinese stocks. Concerns over geopolitical risks and the Chinese economy are prompting cautious approaches from investors, who are waiting for more stability before re-entering the market.
Chinese Stock Market Plummets Despite Rebound Measures
Despite several measures implemented by Chinese authorities since July, such as efforts to bolster investor confidence and support for the capital markets, the market has failed to rebound. The recent sell-offs have persisted despite deploying unprecedented support measures not seen since the global financial crisis.
Chinese authorities have resorted to various strategies, including state-led share buybacks and investment pledges by sovereign funds, such as Central Huijin’s recent injection of over Rmb477mn into state banks. However, experts suggested that these efforts, although intended to bolster market sentiment, might have a limited impact on share prices.
Over the past week, numerous mainland-listed companies, particularly state-owned entities such as China Petroleum & Chemical Corp and China Railway Construction Corp, announced a buyback share program to aid the market recovery. According to data from Wind, a reputable Chinese data provider, these announcements have added to the total sum of Rmb61.2bn used for share repurchases in the mainland stock markets throughout this year.
Chinese Market Downturn Extends to Other Asian Markets
Given the current scenario, both long-term investors and hedge funds are maintaining cautious positions in Chinese stocks, which could potentially restrict further outflows. Analysts anticipate that policy easing and positive market momentum may provide some support over the next few months.
Adding to the market’s woes, the mainland-listed arm of Foxconn Technology Group experienced a notable decline following reports of government investigations into the company’s Chinese facilities. This development has added to the prevailing negative sentiment, raising concerns about the sustainability of the recovery, particularly with declining home sales and growth projections.
The ripple effect of the Chinese market plunge has extended to other major Asian markets, with Japan’s Nikkei 225 and South Korea’s Kospi also experiencing declines. Investors are advised to focus on sectors less affected by foreign fund movements and consider defensive options with stable dividends and lower volatility in this uncertain market climate.
Despite the ongoing regulatory and economic challenges, investors are keeping a keen eye on potential shifts in market dynamics, hoping for signs of stabilization and restored confidence in the Chinese market in the months ahead.
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