On Tuesday, China** saw its biggest gain in years after China's sovereign wealth said it would step up its purchases.
The Shanghai Composite Index, the benchmark index for large state-owned enterprises and blue chips in Chinese mainland, was ***32%, ending six consecutive days**. This is the biggest one-day increase since March 2022. SZSE Component Index**62%。It was the index's best one-day gain since September 2015, while the ChiNext index posted its best performance in seven years, surging 67%。
In Hong Kong, the Hang Seng Index surged 4%, its biggest percentage gain in more than six months.
China's ** came after Beijing stepped up its efforts to prop up the beleaguered **. In 2023, China** has had a dismal performance, the worst performance in the world so far this year**.
As of Monday, Chinese mainland and Hong Kong** had evaporated about 6 percent of their market capitalization since hitting their recent peak in February 2021$1 trillion.
*Continuous** caused dissatisfaction among shareholders. After other channels were shut down, angry investors vented their anger at the collapse on Weibo accounts of the embassies of the United States, India, and Japan. The huge social repercussions have led to the continuous increase in rescue measures. At present, in addition to the national team, administrative restrictions are also coming one after another.
The national team bailed out
Chinese companies are ramping up buybacks to play their part in the expanding rescue operation to stop the world's second-largest $7 trillion in bailouts.
Last month, companies listed in Chinese mainland and Hong Kong spent RMB14 billion (US$1.9 billion) and HK$21 billion (US$2.6 billion) on buybacks**, each the highest since Bloomberg began compiling data in 2021.
Historically, buybacks have been a common tool for official support in depressed markets. On Wednesday, officials renewed their call for companies to do the same to help stabilize the market. Despite collective efforts, the amounts are often too small to have any impact on the market, which is still counting on greater state intervention and bolder policy stimulus to turn things around.
Both company buybacks and national team purchases are positive signs. Businesses know their business better than outside investors, and their record buybacks show that they believe their business is undervalued.
WuXi AppTec and Will Semiconductor's share prices have recently led a wave of buybacks in the mainland last month amid concerns about U.S. sanctions. In Hong Kong, tech giant Tencent Holdings*** and food delivery giant Meituan Dianping are leading the way.
Last month, the CSI 300 Index was **63%, such self-help measures failed to prevent*** This indicates that the impact of listed companies is limited.
After a difficult start to the year, China was **rare on Tuesday** until more concrete signs of stronger policy support, including sovereign wealth** pledging to further increase its holdings in exchange trading**.
Short selling is prohibited
On Monday, the China Securities Regulatory Commission (CSRC) issued a warning against "bad-faith" short selling and said it would step up its scrutiny of margin trading after trading session volatility.
At the same time, a manager said that China's exchange is restricting some hedging This is the latest attempt to stabilize the market that has fallen to a five-year low.
Previously, the authorities had taken a number of measures to prop up the downturn, including limiting net selling by co-managers and limiting short selling, but have so far failed to halt the market slide. Now, regulation seems to be targeting the private equity sector, particularly hedging using quantitative trading strategies that typically involve short selling.
At the moment, all investors are speculating about the bottom line of the $9 trillion **, which is struggling amid China's sluggish post-pandemic recovery, intensifying property crisis and geopolitical tensions.
This regulatory intervention in normal market activity poses a risk as it may cause investors to worry about inconsistencies and arbitrariness of the rules, which could further erode market confidence. During the 2015 market crash, administrative measures also limited the sell-off of hedges.
A hedge** manager said that the sell-off was limited on Monday morning, and the market continued to slide last week due to the economic downturn and market concerns. There is a lack of strong policy stimulus measures like those introduced during past crises.
What is the market**?
Foreign investors seem to have lost confidence in the market due to rising tensions with the United States and a tightening regulatory environment of increasing protectionism. With the continued decline and the recovery in sight, foreign investors have lost patience in the past few years without making any money despite the continued surge in global markets. Hedge managers are exiting the market, while large donors in the U.S. and Europe are becoming cautious about making new investments, according to multiple foreign reports. **The lack of visibility is due to the pain caused by serious problems in China's real estate market, despite the decline in foreign direct investment due to tensions between China and the United States.
The International Monetary Fund's latest staff report shows that highly leveraged developers such as Evergrande and Country Garden have defaulted on dollar-denominated debt, and demand for new homes is expected to fall by about 50% over the next decade. The country's economy is expected to slow further as demand for real estate, which accounts for nearly 30% of the country's GDP, slows.
According to the IMF, China's real GDP is expected to grow by 4 percent in 20246%, down from 52%。Moreover, China's growth rate is expected to slow significantly to 34%。
Regarding US-China tensions, "decoupling" or "de-risking" from China has led to a decline in foreign direct investment (FDI). Geopolitics and U.S.-China relations are the main reasons for the weakening of confidence. Investors are also worried about rising labor costs and a slowing economy, which do not appear to have triggered a strong recovery.
With all this in mind, it's no surprise that foreign investors have sold off in large numbers. By the end of 2023, foreign investors had sold about 90% of the $33 billion China** they bought earlier this year, according to the Financial Times.