Agencies
Antony Xu has steered clear of stocks as his investment portfolio has been unprofitable over the past few years.
"For now, I’d rather put my spare money in banks’ wealth management products,” said the 47-year-old accounting executive in Shanghai. "The returns are low, but at least I can make some money.
I’ve been suffering paper losses from stocks for years and there’s no way I’ll increase my investments in the near term.” Luring investors such as Xu to China’s US$8.2 trillion stock market has proved to be daunting for President Xi Jinping and financial regulators.
Four months after the State Council, China’s cabinet, unveiled a nine-point document aimed at restoring investors’ confidence and attracting long-term funds, the market is back in a downward spiral after a relief rally.
There are telltale signs of investors shunning stocks: turnover on the Shanghai and Shenzhen exchanges has plunged to a four-year low, the benchmark CSI 300 Index has lost a tenth of its value from this year’s high and quick sector rotations dominate trading.
Instead, investors have been scooping up other assets from bonds to exchange-traded funds (ETFs) tracking overseas equities, and luxury homes in tier-one cities.
The frenzy is in sharp contrast to the flagging stock market, with the yield on the benchmark government bond sliding to a record low, ETFs tracking underlying US and Japanese stocks trading at a premium to their net-asset values and new luxury homes selling out.This is a setback for Wu Qing, the chairman of China Securities Regulatory Commission (CSRC), who rolled out a flurry of measures since he took over in February, from pledges to boost the quality of listed companies to crackdowns on short selling. After a brief rebound spurred by such state support, investors have been fleeing amid worries about the prospects of economic growth and corporate earnings.
"The Chinese markets remain very frustrating for investors,” said Gary Dugan, CEO of The Global CIO Office in Dubai, which provides services to family offices, wealth managers and ultra-high-net-worth individuals.
"Investors are looking for tangible and sizeable measures from the government. The market is in need of policies that [can] deliver a boost to near term growth. If an effective stimulus is delivered to the economy, the upside in the market could be sizeable.” Investors are disappointed by the absence of strong follow-up measures, particularly to defuse and tackle the protracted woes in the property market, after the Communist Party’s third plenary session and the ensuing Politburo meeting.
At these two gatherings, top leaders pledged to achieve the annual gross domestic product target of about 5 per cent, spurring optimism about increased policy support for short-term growth.Instead, China’s central bank made cuts to the policy interest rate and the longer-term loan prime rate following the two meetings, underwhelming stock traders and triggering a flight to haven trades.
"While the Politburo’s communique acknowledged economic lethargy and promised measures to address the weakness, there were no new specific policies,” said Ronald Temple, chief market strategist at Lazard Asset Management. "The Politburo highlighted the need to resolve housing issues, but it offered no new meaningful measures to absorb the excess supply of housing units or to stimulate consumption in the broader economy.”
Temple said he was withdrawing the call he made earlier this year about China’s growth bottoming, adding that "China will likely be a drag on global growth again in 2024 and 2025”.China’s patchy economic recovery continued into July. New bank lending grew at the slowest pace in 14 years and industrial output fell short of expectations, while retail sales slightly beat estimates.
The CSI 300 Index is now about 10 per cent off the high for the year set on May 20, and the combined daily trading values on the Shanghai and Shenzhen exchanges fell to 472.9 billion yuan last week. It was the lowest since May 2020 and considerably smaller than the daily average of 589 billion yuan this month and 790 billion yuan this year.
Even some of the most extreme measures taken by the CSRC have failed to revive confidence. A month ago, the watchdog suspended the securities relending business by state-backed margin-trading firm China Securities Finance, which loans stocks to short sellers.
That has virtually decimated short selling, plunging outstanding value to a more than four-year low as short-sellers rushed to unwind trades to skirt the clampdown.
China’s opaque reshuffling of high-ranking finance officials and the ongoing clean-up of the securities industry have also put investors on edge, leaving them guessing about the policy intentions.