China's wealth wipeout
As the country's economic problems grow, so does the doom and gloom among investors in its shrinking stock markets.
China’s piecemeal approach to shoring up market sentiment and boosting public confidence in its economy over the past year has not just puzzled foreign observers. It’s arguably reinforcing a self-fulfilling spiral of gloom and dejection among local traders and mum-and-dad investors alike.
There are fleeting signs of renewed urgency in Beijing’s response, triggered by a deep stockmarket selloff that has seen the MSCI China index plumb five-year lows, and wiped some USD6 trillion ($9.1 trillion) off the market value of Chinese and Hong Kong stocks since a 2021 peak.
China’s State Council, the country’s top government body, last week ordered authorities to take more forceful action to boost confidence and stabilise markets. The People’s Bank of China announced its deepest cut to the reserve ratio requirements of banks in two years, aimed at boosting lending in its financial system. The country’s securities regulator ordered a suspension of short-selling in certain classes of shares. State-backed financial firms — China’s so-called national team — have been mobilised to buy up shares.
But the modest quantum and delayed, drip-fed nature of the stimulus — likened to squeezing a tube of toothpaste by one analyst — has underwhelmed and translated only to a modest relief rally in share prices last week. As China’s myriad problems have become larger and more apparent over time, so too has the entrenched despondence among market participants.
