China pushed some of the country’s banks and insurers to buy more equities, ramping up attempts to prevent the stock market from falling to a two-year low.
The warning was given at a Thursday meeting with investors, including the country’s massive social security fund, as the benchmark CSI 300 Index was falling approaching its lowest level since June 2020. The index was barely changed on Friday after reversing a 1.1 percent decline.
Chinese stocks have lost approximately $2.7 trillion in market value this year as investors were concerned about the country’s harsh Covid Zero rules, business crackdowns, and slowing economic growth. While a government committee led by Vice Premier Liu He presented a broad set of policy promises to stabilise markets in mid-March, investors have been disappointed thus far by a lack of implementation.
“We need to see something sincere from policymakers, either a lot of extra liquidity, a major shift in the Shanghai situation, or a massive surprise that will breathe some new hope into the market,” said Wang Yugang, a fund manager at Beijing Axe Asset Management Co. “For a turnaround in sentiment, we need to see something sincere from policymakers, either a lot of extra liquidity, a major shift in the Shanghai situation, or a massive surprise that will breathe some new hope into the market,” “Even in a vital year like this, a strong stock market is a low priority because there is no systemic risk at the moment.”
The China Securities Regulatory Commission’s meeting on Thursday was followed by a succession of pieces in state media expressing optimism about the economy and markets. The coordinated measures reflect mounting pressure on authorities to boost confidence ahead of a highly anticipated leadership meeting that is expected to affirm Chinese President Xi Jinping’s unprecedented third term.
Other Chinese assets have been targeted as well. As fears rise over slowing economic development amid Covid lockdowns, the onshore yuan is on set for its worst weekly decline since August 2019.
“The PBOC is keen on pulling as many levers as possible to provide more support for the economy, maybe with the exception of decreasing interest rates for the time being,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd. “It appears that allowing the yuan to fall slightly this week is part of the overall’support package.'”
The country’s high-yield dollar bonds also fell for the second week in a row, the longest losing streak since mid-March. As investor patience for further details wears down, this reduces the initial boost that the securities received from Beijing’s assurances.
Higher-rated developers, such as Country Garden Holdings Co., have seen some of the biggest drops this week, indicating broader worries. According to Jean-Louis Nakamura, chief investment officer for the Asia Pacific area at Lombard Odier, any further rally will be sustained only if real and major legislative moves are made quickly.
Rapid Flows of Water
The government has already asked institutional investors to boost their holdings. Following a request made in October 2019, a similar call was issued less than two weeks ago.
With no end in sight to the severe Covid restrictions, offshore investors withdrew a net 5.6 billion yuan ($868 million) from mainland stocks last month, following a 45 billion yuan outflow in March, the largest in nearly two years. In March, global funds reduced their holdings of Chinese bonds to the lowest level on record.
The authorities have expressed little concern about the withdrawals, with Vice Chairman Fang Xinghai of the China Securities Regulatory Commission declaring on Thursday that capital outflows will always return.
Castor Pang, head of research at Core Pacific Yamaichi, said, “Obviously, Beijing wants to halt the gloomy feeling regarding both the economy and the stock market.” “However, the economy is like a huge ship that takes a long time to turn around.” It’s difficult to sway investors’ minds, even if Beijing wants to talk up the market.”
Increase in Pension Benefits
Separately, China released guidelines on Thursday for the growth of individual pensions, which CICC analysts think will be worth 1 trillion yuan in the long run. Additional inflows into local equities could be aided by this.
Meanwhile, the authorities are attempting to resolve a disagreement over the auditing of Chinese companies registered in the United States, an issue that has weighed on public opinion. The Securities and Exchange Commission is meeting with the US Public Company Accounting Oversight Board every two weeks and is “confident” in achieving an audit agreement, according to the regulatory commission’s Fang.
As of the mid-day lunch break, Hong Kong’s Hang Seng Tech Index was down 0.9 percent, extending its four-day losing skid. The benchmark CSI 300 index on the Chinese mainland increased by 0.1 percent. This week, the index has dropped 4.5 percent, putting it on track for its worst five-day performance since January.
Still, this week’s decline could be just what investors need to re-enter the market. Funds have been sitting on the sidelines, waiting for the market to create a “double bottom,” an indication that it is safe to re-enter the market.