While state-backed buying of Chinese equities since the beginning of the year could drive up the markets from multiyear lows, foreign investors, however, are skeptical about whether “the support will last” and can boost their confidence. The Chinese economy is still struggling, and its fundamentals haven’t changed that much to provide a lasting turnaround and consumer and investor confidence, they say.
The “national team” of Chinese state-backed investors, formed in reaction to a 2015 market disaster, pumped 410 billion yuan ($57 billion) into onshore shares this year to bolster the market, the Zurich-headquartered multinational investment bank and financial services company UBS Group AG said in a client note on Tuesday.
Reportedly, this year’s “national team”-based buying appear to be concentrated among a few state investment arms, notably Central Huijin, a unit of sovereign fund China Investment Corp., and China Reform Holdings Corp., a Beijing-based money manager of state assets.
State investors have confined their purchases to shares in state banks and exchange-traded funds (ETFs) that mirror benchmark indexes.
“Since the quarter four of 2023, the ‘national team’ has issued signals to step into the market, suggesting (A-share) market sentiment may have become too bearish,” the note, viewed by The Epoch Times, said.
Stocks tracking the benchmark CSI 300 Index have received over 75 percent of the fund’s injection, while stocks reflecting the CSI 500 Index have received an extra 13 percent. A number of ETFs experienced significant increases in trading volume after Central Huijin Investment reaffirmed its intention to increase ETF holdings, suggesting that the government is actively intervening.
But experts and investors argue that injecting funds into the market by the state will not lead to a sustainable recovery as long as the economy continues to falter and real the estate sector remains unstable, which are significantly denting investor and consumer confidence.
“The Chinese authorities have been called to make some radical policy making in the past weeks, which may draw a line under the marked losses, but it may still not instill the confidence that is needed to lead to more dramatic gains in the market,” Gary Dugan, chief investment officer at Dalma Capital and a foreign investor in China, told The Epoch Times.
According to Mr. Dugan, artificially propping up a market can be a quick fix, but it will only make market participants even more suspicious of the market.
“Domestic investors may be relieved to see a recovery in the level of the market, but no one will gain confidence from the intervention in the market. In essence there needs to be more government action to bring confidence to the economy at large,” he said.
Government ‘Coercion’?
Since 2021, China’s stock markets have declined dramatically, resulting in losses of more than $6 trillion. This market disaster contrasts sharply with hopeful anticipation of a bull run following China’s lifting of rigorous COVID-19 control measures.The reasons for this decline include basic worries about China’s economy and skepticism about Beijing’s commitment to supporting it. The world’s second-largest economy continues to confront challenges such as a housing crisis, deflationary pressures, and demographic difficulties.
“China’s crisis-mired property market remains a key concern, with weak sales, default risks, and a consensus among major financial institutions projecting a continued slump in 2024. Despite government efforts, the pessimistic outlook signals ongoing economic challenges,” Michael Ashley Schulman, chief investment officer at California-based Running Point Capital, wrote in his recent LinkedIn blog.
He adds that while recent initiatives provided short-term respite, investors are nonetheless concerned about long-term economic prospects. Six months of straight outflows, “totaling $30 billion in foreign institutional sales of mainland Chinese equities,” suggest ongoing worries.
Besides, the Chinese government’s crackdown on the private sector and priority of politics over economic assistance have left investors concerned as well.
For example, after an investigation by the U.S. Securities and Market Commission, Alibaba Group Holding Ltd, China’s e-commerce pioneer, revealed a tangled network of Chinese government interests in its business subsidiaries in filings with the U.S. and Hong Kong stock markets over the weekend. The filings come as the Chinese Communist Party said earlier this month that it will take a more active role in guiding the country’s scientific and technological advancements.
On Monday, Reuters reported that 47 companies had to cancel their preparations for initial public offerings in China this year as the securities authority tightened requirements on share listings in the plummeting market. The China Securities Regulatory Commission (CSRC), led by new chairman Wu Qing, requested regulatory comments from market players and punished a business for false listing, among other moves to restore trust while key indexes remain at five-year lows.
A CSRC official also indicated on Friday that it would impose increasingly severe penalties on fake listings, accounting frauds, and money embezzlement by large shareholders as part of a push to restore investor trust in the stock market.
Downside Arrested, but Concerns Linger
Beijing’s unwillingness to execute forceful stimulus measures, citing concerns about high debt levels and financial dangers, has further disappointed investors, experts say.“The buying only provides confidence that the market’s downside risk is limited, [but] I doubt it [will] convince international investors that the market will make sustained gains,” said Mr. Dugan.
Meanwhile, China stocks rose, according to Reuters, on Tuesday with China’s blue-chip CSI 300 Index gaining 1.2 percent over the Monday, while the Shanghai Composite Index climbed 1.3 percent. The CSI also rebounded 12.4 percent from a recent low early this month on authorities’ orders to “support” the markets.
Yet, as foreign investors wait for the government’s next policy move—given that China’s rubber-stamp parliament, the National People’s Congress, opens its annual meeting on March—the mood remains downbeat.
“Asia funds have made a modest increase in their holdings on mainland China, [while] foreign investors turned net buyers of mainland China after six straight months of outflows,” said HSBC in a client note, viewed by The Epoch Times, on Tuesday.
“Still, mainland China is an underweight fund holding. It’s just that funds marginally increased exposure,” it added.
