Expectations are rising that the Chinese government adopt stronger measures to end the country’s stock market crisis, and regulators are scheduled to brief President Xi Jinping on the market this Tuesday.
Chinese stocks extended their rebound after Bloomberg reported that regulators led by the China Securities Regulatory Commission plan to update top leaders on market conditions and the latest policy initiatives. according to people with knowledge of the matter. The benchmark CSI 300 index closed 3.5% higher in its best day since the end of 2022. Small caps, which have so far borne the brunt of the decline, also rose, with the CSI 1000 index up 7%, the biggest gain since 2008.
Although it is unclear whether new support measures will emerge from Xi’s meeting, traders hope this time will be different.. Since the highs reached in 2021, Hong Kong and Chinese equities have lost some US$7 trillion, and partial measures to support the economy and stabilize markets have so far failed to lift spirits. For policymakers, it is important to stabilize the stock market to avoid further damaging consumer confidence as China enters the Lunar New Year holiday week.
“The news that the nation’s No. 1 is holding a meeting is encouraging as it shows that the decline is about to exceed the authorities’ comfort level,” said Li Weiqing, fund manager at JH Investment Management. Co. “It seems to me that they are doing everything they can, other than calling the market: now is the time to buy.”
The report on Xi’s meeting followed a flurry of supportive announcements earlier in the day, including a pledge by Central Huijin Investment Ltd., the unit that owns Chinese government stakes in large financial institutions, to buy more exchange-traded funds. in a bag. Every effort will be made to maintain the stability of market operations, the securities supervisory body stated in a follow-up comment.
Foreign capital inflows surged as foreign funds bought more than 12 billion yuan ($1.7 billion) of mainland Chinese stocks on Tuesday, the most this year.
One of the risks for buyers is that the outcome of the meeting will not impress and cause a new sell-off. The battered market has seen multiple false dawns over the past year, with stimulus-driven rallies that barely lasted more than a few days, as poor economic data and new political surprises hurt sentiment.
The stock crash in 2015 suggests that any bailout attempt might not turn the market around immediately. Authorities curbed speculative operations, combated market manipulation and advised some investors to avoid selling shares.. However, it took months for the stock to bottom and hit a level much lower than the 2015 high.
“Our view has been that state support may, in fact, lead to a tactical rebound, but we are not sure it can be enough for a sustained rally,” said Rajat Agarwal, Asian equity strategist at Societe Generale SA. “Even if we look at 2015, the buying started in the summer, but the rebound did not last and the market did not touch fund until early 2016”.
As the collapse spreadse, Xi has shown signs of becoming increasingly involved in the country’s financial and economic policiesincluding an unprecedented visit to the central bank late last year.
Authorities have been working tirelessly over the past few months to come up with market rescue measures, the people said. The securities regulator has worked on weekends and the National Financial Regulation Administration has convened at least a dozen meetings in the past two months to stabilize capital markets.
The CSRC and NFRA did not immediately respond to Bloomberg’s requests for comment.
Authorities this week tightened trading restrictions, prohibiting some quantitative hedge funds from placing sell orders and others from trimming stock positions in their leveraged market-neutral funds, in an effort to contain losses.. The securities regulator also said Monday that it will guide broker-dealers to adjust their margin levels and maintain “flexible” settlement lines to limit fire sales.
Previous efforts included restricting short selling and state purchases of shares in the country’s largest banks. The measures have had little success in restoring investor confidence, whiche has been affected in recent years by the economic slowdown, as well as Xi’s increasing control over private enterprise and extensive repressive measures.
Even with this week’s rally, equity benchmarks remain among the worst this year among more than 90 global indicators tracked by Bloomberg. The CSI 300 plunged to its lowest level in five years on Friday and was still down more than 40% from its 2021 peak.
“The fact that an extraordinary meeting has been called could indicate that things have gotten so bad that the top needs to be informed,” said Xu Dawei, a fund manager at Jintong Private Fund Management in Beijing. “If there was a state media report on this, I would say with confidence that this is the turning point, as now you also see concerted actions.”