(Bloomberg) - China’s Premier Li Qiang called for more effective measures to stabilize his country’s slumping stock market after the mainland’s benchmark CSI 300 Index hit a five-year low on Monday.
Chinese equities have sold off for most of the past year, hurt by factors ranging from a protracted crisis in the housing market to persistent deflationary pressures in the wider economy. Beijing’s policy response, meanwhile, has failed to buttress sentiment among investors hoping for even easier monetary conditions or a big lift in fiscal stimulus.
At a meeting on Monday chaired by Li, the State Council, China’s cabinet, emphasized the need to enhance the quality and investment value of listed companies, according to a report by state-run China Central Television.
A rally in late 2022 sparked by China’s lifting of draconian Covid restrictions proved short-lived, with concerns about poor consumer confidence among the factors weighing on equities. The CSI 300 has slumped some 20% over the past nine months.
“The slow recovery is certainly at the root of the dismal stock performance,” according to a Bloomberg Economics report led by Bloomberg Economist David Qu. It’s crucial for the government to roll out forceful measures to quickly turn sentiment around, Qu wrote.
China has in the past sometimes deployed state assets to intervene in the markets. The country’s sovereign wealth fund made such a move in October. In Monday’s State Council meeting, the remedies under discussion included getting more medium and long-term funds to invest in and stabilize stocks, the CCTV report showed.
Other measures included strengthening the regulations that govern capital markets. China also needs to improve the consistency of its macro policies in order to consolidate the nation’s economic recovery, CCTV said in its summary of the meeting.
Pulling Out
The tumble in Chinese equities threatens to undermine international confidence in the country’s financial system just as President Xi Jinping pushes to make the nation a world “financial power.” Overseas investors have already been skittish over the Communist Party’s increasing influence in the economy.
“We pulled our clients out of China,” Alicia Levine, BNY Mellon Wealth Management’s head of investment strategy, said on Bloomberg Television Monday. “The political party is sitting at the top of the corporate structure of every large company and small company in China — very hard to invest that way.”
China’s stock markets are also at the moment facing potential selling pressure from so-called snowball derivatives, adding to investor concerns.
(Updates with analysis and context starting in fourth paragraph.)
By Evelyn Yu
