After a rocky couple of years for the Chinese economy, the country's stock market appears to be in free fall now, with authorities asking institutional investors not to sell stocks in an attempt to stabilize share prices as foreigners are pulling out.
On Monday, Chinese equities dipped after the country's central bank decided to keep its medium-term policy rate unchanged at 2.5 percent, failing to cut interest as was widely expected by investors. The country's CSI 300 was at its lowest level since 2019, a record only previously beaten in October 2023.
Today, the index was up by 0.006 percent compared to Monday, while it was down by 25.64 percent compared to a year before. The global markets, on the other hand, have surged in the past year, with the S&P 500 skyrocketing 24 percent in 2023, hitting an all-time high.
While the CSI 300 consistently sank through the past year, the MSCI World index—which covers large- and mid-cap representation across 23 Developed Markets (DM) countries—started steadily rising from the beginning of the second quarter of 2023.
The FTSE China 50 index—a real-time tradable index comprising 50 of the country's largest and most liquid stocks—has plunged by 1.77 percent between Monday and Tuesday as part of a long-term large decline over the past six months. Compared to one year ago, the index is down by 29.24 percent.
China's market regulators have tried to stabilize the market by imposing restrictions that stop some investors from being net sellers of equities on certain days. This strategy—with authorities offering what's known as "window guidance" in an attempt to help the country's stock market bounce back—was first introduced in October.
Until recently, the regulators' restrictions appeared to be working as intended, as the benchmark CSI 300 stock index reported a 3 percent rebound in the final week of 2023, as reported by the Financial Times.
However, this modest success was reversed in the first week of 2024 as authorities were forced to remove limitations on some smaller mutual funds and on brokers in the face of increasing redemptions from customers, with the index now being down more than 4 percent this month.
Under pressure to stop share prices from freefalling, the country's market regulators have already reintroduced restrictions on some securities companies—large institutional investors—according to FT.
China's central bank, the People's Bank of China (PBOC), has been left with little room for maneuvering to strengthen the country's economy as the Chinese yuan has weakened in recent months and the bank is likely to want to avoid a further depreciation of the currency. The yuan has already weakened more than 1 percent against the U.S. dollar this year.
On the other hand, the country's leadership has appeared reluctant to use state-run funds and financial institutions to buy up stocks massively and boost the national economy. This apparent unwillingness to intervene has spooked foreign investors, with nine-tenths of money that had flowed into China's stock market from abroad in 2023 having left by the end of the year, according to FT calculations.
Update, 1/16/23 9:35 a.m. ET: This article was updated to include a paragraph about the situation in the global markets.
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