Chronicle - Feb 11, 2024
Beijing is Trying to Prop Up Stocks
Should you invested $1,000 in China stock market by end of 1993 (about 30 years ago), your investment value would have become $861 by end of 2023, including reinvestment of dividends. This number translates into a negative 0.5% compound annual return on investment! In contrast, your investment in U.S. stocks over that same period would have produced about 18.5 folds. Turns out that so called “explosive” economic growth of China is not the same with investment return, especially when things are so artificial and government-arranged.
Don’t let it sink
Just as Beijing has been stepping up efforts to support stock markets in recent weeks, the decline in China's stock market continues. Year to date, the China Shanghai Composite Stock Market Index (SHCOMP) has fallen -3.7% amid extreme volatility. This seemingly modest fall is a continuation of a downward trend that began in late 2021 and has yet to surpass the previous peak in June 2015. Since then, SHCOMP's value has decreased by 44%.
The spiraling crisis
Investors are concerned about how vulnerable China's economy is. The real estate problem has not been resolved since the largest Chinese property group, Evergrande, went bankrupt in 2021. Residential property prices have fallen by 9% during the last two years. However, the actual price decline could be far greater than the official statistics suggest. According to a Fortune story, a Chinese resident saw his home investment fall by 20% by 2023. For a normal Chinese household, property may account for 70% of total family wealth. A loss of wealth of this magnitude could have far-reaching consequences for the economy.
The stock market slump has made this wealth loss worse, particularly for middle-class residents. This group often invests in property and financial assets, both of which have declined in recent years. Meanwhile, low inflation, or worse, deflation, causes their salaries to stagnate or be cut.
This economic problem has impacted social life. As we noted in last year’s chronicle, youth unemployment in China had reached its highest level of 21.3% before the data was discontinued.
More interventions
Given this backdrop, Beijing tries very hard to prop up the stock market. Not only to stop more wealth destruction but also to recover economic confidence.
A wide range of measures have been taken. From the absurd idea of cutting stamp duty on stock trading and slowing down IPOs to enhance existing stock liquidity to setting up a $280 billion market stabilization fund.
A policy set to encourage banks to provide loans for developers, industrial zones, rural organizations, and companies to build or renovate homes.
Issuance of $139 billion in special bonds to fund projects related to food, energy, and the supply chain.
A $278 billion stock rescue package to buy Chinese stocks.
Cut the reserve requirement ratio so banks could release more liquidity; Beijing targets $139 billion of liquidity released.
Widen the securities lending restrictions for short selling.
Encourage companies to buy back stocks.
ordering Chinese state funds and Sovereign Wealth Funds to purchase the falling stocks.
Crack down on ‘illegal activities’ including short selling and insider trading.
Adjust the margin call levels to reduce pressure from forced selling.
More trading restrictions on domestic institutional investors.
Replaced the head of the securities regulator.
These are not all the measures. In fact, Beijing has always actively supported its stock market every time there is a crisis, including the 2015 stock rout. So far, optimistic investors are cheering every time Beijing announces new measures. Various investors, from Ray Dalio’s Bridgewater to Singaporean hedge fund Asia Genesis, are bullish on China based on the seriousness of Beijing's efforts.
But at the time this story is written, efforts have been fruitless as the stock market downtrend continues.
IPO — New Listing
KYTX 0.00%↑ Kyverna Therapeutics, Inc., a patient-centered, clinical-stage biopharmaceutical company focused on developing cell therapies for patients suffering from autoimmune diseases.
PMNT 0.00%↑ Perfect Moment Ltd., a luxury lifestyle brand that combines fashion and technical performance for its ranges of skiwear, outerwear, swimwear and activewear.
AHR 0.00%↑ American Healthcare REIT, Inc., a self-managed REIT that acquires, owns and operates a diversified portfolio of clinical healthcare real estate properties, focusing primarily on MOBs (medical office building), senior housing, SNFs (skilled nursing facility), hospitals and other healthcare-related facilities.
ANRO 0.00%↑ Alto Neuroscience, Inc., a clinical-stage biopharmaceutical company with a mission to redefine psychiatry by leveraging neurobiology to develop personalized and highly effective treatment options.
GUTS 0.00%↑ Fractyl Health, Inc., a metabolic therapeutics company focused on pioneering new approaches to the treatment of metabolic diseases, including type 2 diabetes and obesity.
AS 0.00%↑ Amer Sports, Inc., a global group of iconic sports and outdoor brands, including Arc’teryx, Salomon, Wilson, Atomic and Peak Performance.
IPO — Performance
