The Chinese stock market has had a precipitous drop since the start of 2024 as the economy fails to recover to pre-COVID-19 pandemic levels, prompting a possible government stimulus, according to Bloomberg.
The Chinese Communist Party is considering mobilizing the equivalent of $278 billion from offshore state-owned enterprises to buy shares in the country’s rapidly declining stock market, according to Bloomberg. Proposals for stimulus come as the country’s CSI 300 Index hit a five-year low due to a limping economy plagued by a debt-laden real estate sector, leading to a massive outflow of foreign capital.
“The potential support package should be able to stem declines in the short term and stabilize markets into the Lunar New Year, but state buying alone has historically had limited success in turning around market sentiment if not followed up by further measures,” Marvin Chen, strategist at Bloomberg Intelligence, told the outlet.
China’s top index, the CSI 300, peaked at the beginning of 2021 at around 5750 points, but has since had a semi-steady decline to well below 3500, according to Bloomberg. The drop from 2021 has resulted in $6 trillion in lost capital.
#China’s economy spooks markets, and stocks sink. The CSI 300 has underperformed the S&P 500 by >40ppts over the year. https://t.co/xNgFnu77m0 pic.twitter.com/yZQSM4fxNZ
— Holger Zschaepitz (@Schuldensuehner) January 17, 2024
China’s economy has failed to resume the growth rates seen before the COVID-19 pandemic, despite expectations, with the country’s economy only expanding 5.2% in 2023. The economy is being dragged by the once-booming real estate sector, which saw a 36.7% rise year-over-year in foreclosures in 2023.
Foreign investors fled China in December at the fastest rate in all of 2023, pulling out $3.8 billion in Chinese and Hong Kong equities, the third worst outflow in the country’s history. Pessimism in the Chinese economy has led the Institute of International Finance to estimate that another $65 billion in foreign investment will exit the country in 2024.
“Until there is a bigger crisis, the Chinese government may just continue to kind of throw cups of water on the fire instead of something big that they probably need to do,” Derrick Irwin, emerging markets portfolio manager at Allspring, toldReuters. “There is a degree of capitulation…at this stage, markets are not being driven necessarily by spreadsheets and calculations, but more on emotion and maybe technical issues.”
Will Kessler on January 23, 2024
