China is coming to the aid of its stock markets…enough?

According to Bloomberg, China is considering measures worth $278 billion to support its financial markets. This would involve mobilizing resources held by state-owned companies overseas to provide a stabilization fund whose aim would be to buy domestic shares through Hong Kong’s financial centre. Still according to these sources, instructions will also be given to local funds to invest in domestic stocks to support prices.

Other options are also said to be under investigation and may also be announced this week.

These moves come at a time when Chinese stock indexes are unable to stop their decline: the HangSeng index of Chinese stocks listed in Hong Kong has fallen to its lowest level since October 2022, i.e. the period preceding the health relaxation announcements. The current levels are also those that the index experienced during the subprime crisis, or the levels at which it operated in…1997.

So Chinese stocks are definitely on fire. The HangSeng Tech index, which aggregates Chinese technology stocks, has fallen 75% since its peak in 2021, almost matching the intensity of the Internet bubble burst in the early 2000s…

Domestic indices such as the CSI300 are also in bad shape: the index has fallen 46% since its 2021 peak and is at its lowest level since the start of 2019.

The question of the adequacy of support measures arises because foreign investors have fled Chinese markets, scalded by four years of erratic and brutal decisions by Chinese authorities, whether on health measures, sudden tightening of regulations, disappearance of business owners. Nor is the property crisis the only explanation for the poor performance of Chinese financial stock markets, part of foreign investors’ risk aversion to Chinese assets also comes from China’s geopolitical stance, whether its rapprochement with Russia or its wishes regarding Taiwan.

A sustained recovery in Chinese stock indices and the return of investors will also require an easing of commercial and diplomatic relations with the US, as well as a change in geopolitical stance.

Leave a Comment