Shanghai Stock Exchange and Hang Seng index have been struggling to perform for the past few years despite intervention by the Chinese government, which has led to frustration among investors. These Chinese stock exchange indices have experienced sharp declines thanks to brutal selloffs amid uncertainty and a lack of confidence in the market. Investors have blamed the Beijing government for failing to take necessary steps to stabilize the market.[1]
The growing disinterest can be gauged from recent developments at the Hang Seng exchange. The decline in fundraising from the new listing has been lowest in the past two decades. A total of 26 companies raised USD 1.5 billion through Initial Public Offering (IPO) in the first half of 2024, which is 35 percent less compared to the corresponding period a year ago.[2]
“Lacklustre market sentiment in Hong Kong is one of the main reasons the IPO market has slowed down in the city,” said Louis Wong, executive director of Phillip Capital Management.[3]The Shanghai stock exchange is not doing any better. Over 130, firms withdrew their plans for listing on the exchange due to weakness in the Chinese equity market.[4] It included a multi-billion bid by the Swiss agrichemicals and seeds group Syngenta.[5]
The situation in Chinese exchanges continues to worsen.[6] Investors who lost their money expressed their anger on social media using euphemisms and jokes to bypass censorship imposed by the Beijing government. “The US government, please help Chinese stock investors,” a Chinese person wrote on the US Embassy’s Weibo page.[7]
The comments by people showed a growing loss of confidence in the country’s stock market and government, said a Chinese person named Jacky, an analyst in the manufacturing industry. “Their reactions are more than about losing money in the markets. The venting probably serves as an outlet for their accumulated frustrations in life,” he said.[8]
A package of measures by the China Securities Regulatory Commission (CSRC) and the government’s decision to cut trading taxes have not helped improve the situation. “This reflects the attitude of the central government. The government is worried that a further stock market slide could trigger a chain reaction, including social unrest and damage to the real economy,” said Zhang Yang, strategist at Orient Securities.[9][10]
The Shanghai index slid after China’s industry profit for May 2024 showed a decline. Hang Seng too took a plunge thanks to problems associated with the technology sector and the Chinese economy.[11] “Despite attempts by state authorities to stabilize the market, investor sentiment remains fragile, reflecting deep-seated concerns about the reliability of government policies and the regulatory framework,” warned Stephen Innes, managing partner at SPI Asset Management a while ago.[12]
In just three years, investors lost about USD 6 trillion from Chinese stock exchanges, which is equivalent to roughly twice Britain’s annual economic output.[13] The beginning of 2024 has been dreadful and distressing for the Chinese exchanges. Japan’s Tokyo overtook Shanghai as Asia’s biggest equity market while Hang Seng lost 12 percent in the first three weeks. All this happened despite the Beijing government’s constant government intervention. [14][15]
These developments were a reflection of the diminishing confidence in the Chinese markets as the policy responses fell short of market expectations.
“It’s a capitulation,” said Dickie Wong, executive director at Kingston Securities. “No matter what the central bank does, it will not change the fact that foreign investors have zero confidence in this market now.”[16]
Experts cited the risks including growing Sion-US tensions for slowing investment in Chinese markets, causing Shanghai to lose its crown to the Tokyo Stock Exchange. Ayako Terada, a strategist at Nomura Securities, said “There is a sense of uneasiness spreading among investors as property industry woes slow the Chinese economy and the country’s government strengthens controls against IT firms.”[17]
Nomura analysts highlighted the increasing confusion over the policy stance of the Beijing government on China’s economy, leaving investors concerned about the country heading to stagnation. “Thecentral bank did not deliver a much-expected cut of its benchmark lending rates last week. Top officials’ comments suggest Beijing is reluctant to seek short-term growth at the cost of increasing long-term risks,” they wrote.[18] END.
[1] www.reuters.com/world/china/investors-give-up-futile-wait-china-fix-economy-2024-01-23/
[2] https://www.scmp.com/business/banking-finance/article/3268422/hong-kongs-ipo-proceeds-plunge-2-decade-low-pushing-city-down-global-rankings
[3] https://www.scmp.com/business/banking-finance/article/3268422/hong-kongs-ipo-proceeds-plunge-2-decade-low-pushing-city-down-global-rankings
[4] https://www.asiafinancial.com/over-130-firms-drop-ipo-plans-as-china-ramps-up-scrutiny
[5] https://www.reuters.com/markets/deals/shanghai-stock-exchange-terminates-review-syngentas-ipo-application-2024-03-29/
[6] https://gfmag.com/capital-raising-corporate-finance/chinas-ipo-decline-sharply/
[7] https://edition.cnn.com/2024/02/05/investing/china-stock-market-plunge-us-embassy-weibo-hnk-intl/index.html
[8] https://www.nytimes.com/2024/02/15/business/china-stocks-a-shares.html
[9] https://www.reuters.com/article/markets/stocks/china-stock-tax-cut-to-boost-market-idUSNOA432649/
[10] https://www.economist.com/finance-and-economics/2024/02/07/chinas-stockmarket-nightmare-is-nowhere-near-over
[11] https://www.investing.com/news/stock-market-news/asian-stocks-fall-as-micron-sparks-tech-losses-china-data-weighs-3498594
[12] https://edition.cnn.com/2024/02/05/investing/china-stock-market-plunge-us-embassy-weibo-hnk-intl/index.html
[13] https://edition.cnn.com/2024/01/23/investing/china-stock-market-losses-explained/index.html
[14] https://www.bnnbloomberg.ca/china-stocks-slump-as-concerns-mount-on-disappointing-data-1.2022872
[15] https://economictimes.indiatimes.com/markets/stocks/news/shanghai-stocks-slide-again-losses-limited-by-govt-support/articleshow/107425097.cms?from=mdr
[16] https://www.scmp.com/business/markets/article/3249286/hong-kong-stocks-extend-slide-approach-15-month-low-china-banks-hold-lending-rates-snubbing-easing
[17] https://www.japantimes.co.jp/business/2024/02/20/markets/tse-asia-top-spot/
[18] https://edition.cnn.com/2024/01/23/investing/china-stock-market-losses-explained/index.html