Despite various interventions in the stock market, liquidity injections by the central bank, and increased restrictions on short selling, Chinese stocks continue to be weighed down by the troubles in the real estate sector. Recent data revealed a continued decline in property investment, a significant driver of China’s economic activity, along with the fastest drop in home prices in nearly a year in September. This negative trend offsets any investor optimism stemming from third-quarter economic growth data.
On Friday, the main CSI 300 Index saw a more than 4% decline, marking its worst week in a year and erasing all the gains achieved during its remarkable reopening rally late last year. This selloff occurred in spite of multiple market-boosting policies, including stricter regulations on short-selling activities.
Hao Hong, Chief Economist at Grow Investment Group, pointed out that “Investors need to see a way out of all the major problems, like the property woes.” He emphasized the importance of how Beijing manages its property market and its relationship with the US. Economic data has taken a backseat to these concerns.
The global stock market weakness due to geopolitical tensions in the Middle East exacerbated China’s market woes, leading to foreign investors offloading 24 billion yuan ($3.3 billion) of onshore stocks on a net basis this week, the most since the week ending August 18. Despite this, Morgan Stanley advised against buying the dip, cautioning that sentiment is likely to remain fragile, and foreign fund outflows may persist.
A Bloomberg Intelligence index of Chinese developers’ stocks hit its lowest level since 2009 this week, as attempts to boost the housing market failed to inspire investor confidence. Homebuyers remain cautious, and several large developers, such as Country Garden Holdings Co., continue to grapple with liquidity problems.
Elizabeth Kwik, Investment Director of Asian Equities at abrdn, mentioned, “If there’s stabilization on the real estate side and a pick up in consumer confidence, that will be the next thing that will drive the rally we’ve been waiting for.”
Some market analysts believe that upcoming events, including the politburo meeting, the Third Plenum, and a potential meeting between US President Joe Biden and President Xi Jinping at the APEC Summit next month, could act as catalysts for change.
Minyue Liu, an investment specialist for Asian and Greater China equities at BNP Paribas Asset Management in Hong Kong, stated, “We do see two key risks hanging over China’s economy — the first one is property, and the second is local government debt. These issues have not yet been resolved. We heard that the government is working on a comprehensive plan. We do hope this will be announced soon.”
Recent reports suggest that China is considering establishing a state-backed stabilization fund to boost confidence in its $9.1 trillion stock market. However, the CSI 300 Index briefly recovered some losses upon this news but ultimately closed the day in the red.
With nearly a 10% decline in 2023, the index is on track for an unprecedented third consecutive year of losses, as investors remain cautious and set high expectations for positive developments.
Tina Teng, an analyst at CMC Markets in New Zealand, explained, “Recent measures taken by the government cannot solve the economic issue that China is facing, particularly in the property sector. Despite the recent positive data, investors remain cautious. The data has to be consistent and keep improving to convince them.”
