“The volatility of this market has led many investors to question where China’s equity market is headed”, Andy Rothman, investment strategist for Matthews Asia, said in a research report this week. The slowdown in key industrial sectors has intensified leading to a huge pile-up of bad loans. Asian stock markets continued to react on Thursday as the…
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In the weeks since, Beijing has desperately attempted to curb the sell-off it triggered, enacting a litany of interventionist measures ranging from cutting interest rates to banning major shareholders from disposing of their stocks. And even if it does (which it might), there will be ramifications for China eventually, since restrictions on selling shares are bound to undermine confidence in capital markets in the long term.
Sun Xiwei, an analyst with CITIC Securities, said the two-day rally responded to the government moves to bail out the market and the market is expected to stabilize in about two months. They announced a plan to lend billions to Chinese brokerage firms.
The individual collapses of companies could also have been more severe if it wasn’t for the 10% maximum movement that Chinese stocks are allowed to make each day – once they fall by a tenth in value, trading is suspended.
The impact on Chinese investors is direct, but for investors in the U.S, Europe and elsewhere, it’s not as simple.
It remains unclear whether the market meltdown in the past month has damaged the real economy, but the recent inflation data – both retail and wholesale – was disappointing. Indian stocks, on the other hand, are overvalued and not related to fundamentals, so it is unlikely that foreign institutional investors will rush to the Indian markets. However, things have turned out in such a way that the economy may suffer from the market meltdown.
The NYSE said in a statement Thursday that the upgrade resulted in communication problems between its trading software and other systems, causing customers’ orders to not go through.
Her experience illustrates how China’s novice investors tend to be the biggest losers in the event of a market meltdown.
The Shanghai Composite rose 6.1% to 3934.54, though the index is off 23.8% from its June high.
Beijing’s interventionist response has also raised questions about its ability to enact market liberalization steps that are a centerpiece of its economic reform agenda.
Many investors say China’s unprecedented attempts to arrest the slide have undermined its commitment to give markets a “decisive” role in pricing assets.
Anyone who was upset about the decision last month is now “probably thinking what a bullet they dodged”, said Every.
Reflective of the positivity in mainland Chinese markets, along with significant short-covering, Hong Kong’s Hang Seng, after plunging nearly 6% on Wednesday, is up by 3.71% shortly before the close.
History suggests that won’t be a cure either.
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Chief Executive Leung Chun-ying, however, lauded the city’s management of the crisis, when asked about the proposed Shenzhen-Hong Kong Stock Connect.
