Analysis: Chinese stocks have lost $6 trillion in 3 years. Here’s what you need to know | CNN Business (2024)

Analysis: Chinese stocks have lost $6 trillion in 3 years. Here’s what you need to know | CNN Business (1)

A person watches the closing price of the Shanghai Stock Exchange in Hai 'an, east China's Jiangsu province on January 17, 2024.

Editor’s Note: Sign up for CNN’s Meanwhile in China newsletter, which explores what you need to know about the country’s rise and how it impacts the world.

Hong Kong CNN

Chinese shares haven’t just had a bad start to 2024. It’s been rough going since February 2021, when they hit their most recent peak.

Over the past three years, about $6 trillion — equivalent to roughly twice Britain’s annual economic output — has been wiped off the value of Chinese and Hong Kong stocks.

The Hang Seng index has crashed 10% so far this year alone, while the Shanghai Composite and Shenzhen Component indexes are down 7% and 10% respectively.

The astonishing losses, reminiscent of the last Chinese stock market crash of 2015-2016, highlight a crisis of confidence among investors concerned about the country’s future.

“The past three years were no doubt a challenging and frustrating periodfor investors and market participants in Chinese equities,” Goldman Sachs analysts wrote in a research note Tuesday. “China … [is] currently trading at suppressed valuations and decade-low allocations across [investment] fund mandates.”

The world’s second largest economy is plagued by a myriad of problems. They include a record downturn in real estate, deflation, debt, a falling birthrate and shrinking work force, as well as a shift towards ideology-driven policies that has rattled the private sector and scared away foreign firms.

The stock meltdown has made Chinese markets the world’s worst performers so far this year. All this is playing out against the backdrop of a global stock market rally, led by Wall Street’s record-setting run, and by Japan in Asia.

There are signs the Chinese government is beginning to worry. Reuters reported this week that Beijing asked banks to sell dollars to prop up the yuan, and Bloomberg said Tuesday that the government was preparing to intervene directly to support stocks.

Chinese Premier Li Qiang on Monday ordered officials to take “forceful and effective measures” to stabilize the markets. But can investors’ confidence be restored?

What’s driving the meltdown?

In short, investors are worried about the lack of effective policies from Beijing to spark a sustainable economic recovery.

China’s economy grew 5.2% in 2023. That was its slowest pace of expansion since 1990, with the exception of the three pandemic years through 2022.International economists widely expect the country’s growth to slow further this year to around 4.5% and drop below 4% in the medium term.

While that may seem reasonable for a major economy, it is far below China’s double-digit growth of the past decades. The country may be staring at decades ofstagnation to come, analysts have said, as the slowdown is structural in nature and won’t be easily reversed.

“There has been increasing confusion over the Beijing’s policy stance on the economy,” said Nomura analysts in a research note late Monday.

“The (central 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 added.

Last week, the People’s Bank of China (PBOC) kept its medium-term lending facility rate steady, contrary to market expectations that it would make its first cut since August. On Monday, the central bank also kept its Loan Prime Rate — a key interest rate that influences mortgages — unchanged, further dashing hopes for a cut.

What else is going on?

Over the past year, Beijing has rolled out only piecemeal policies to drive economic recovery. But that is not enough, according to Goldman Sachs analysts.

“Conventional macropolicy easing has so far fallen short of investor expectation,” they said. “Ashift in the piecemeal easing playbook to a more aggressive, big-bang approachmay be needed to overturn the negative narrative in the market.”

In particular, an “effective government backstop” to prop-up failing property developers and to stimulate demand for housing is needed to resolve the current real estate crisis, which is at the heart of many of China’s economic problems, they added.

Investors are also concerned about existential questions bedeviling China’s future.

“China’s commitment to reform has been called into question,” they said, adding that the concerns were prompted by Beijing’s crackdown on Big Tech,its emphasis on national security, and the increasing dominance of the state sector in key industries. “These policy uncertainties have discouraged the investment appetite.”

In addition, US-China tensions have forced US investors to “meaningfully” reduce their exposures to and ownership in Chinese equities, the analysts said.

What is Beijing doing about the crash?

Premier Li, who chaired a cabinet meeting Monday, has vowed to take action to boost the stock market and improve liquidity, according to a read-out published by Xinhua. It didn’t elaborate on what the measures will be.

But on the same day, major state-owned banks moved to support the Chinese yuan, in order to prevent the currency from falling too fast as Chinese shares plunged, according to a Reuters report, citing unnamed sources.

A Tuesday Bloomberg report said Chinese authorities are considering intervening more directly by mobilizing some 2 trillion yuan ($282 billion) as part of a stock market stabilization fund, mainly by using the offshore accounts of Chinese state-owned enterprises.

The fund would buy mainland China-listed shares through the Hong Kong stock exchange. The authorities have also earmarked at least 300 billion yuan ($42 billion) of local funds to invest in mainland Chinese shares, Bloomberg reported.

“If the rumour proves to be true, the asset purchase program could generate a significant size of [yuan] purchase flow,” said Ken Cheung, chief Asian FX strategist for Mizuho Bank.

He also believes the PBOC’s decided not to cut interest rates to prevent the yuan from depreciating further.

The Bloomberg report was enough to arrest further declines on Tuesday, with Hong Kong’s benchmark Hang Seng index closing 2.6% higher and the Shanghai Composite up 0.5%.

How are people reacting?

The stock market rout has triggered public anger on Chinese social media, where many people have called on regulators to take effective measures to stem the decline.

More than 220 million individuals are invested in China’s stock markets, according to official figures, and those people account for 99% of the total investor base.

Topics related to the “market plunge” and “China’s stock market rescue” were trending on Weibo on Tuesday.

Even prominent influencers who normally spout the official line urged Beijing to take immediate action to rescue small investors.

“I’m sad about today’s stock market performance,” Hu Xijin, former editor-in-chief for state newspaper Global Times, posted on Weibo on Monday.

“The impact of the stock market’s continuous decline has gone beyond the capital market, and has a negative impact on confidence in the entire economy and comprehensive social confidence. I personally believe that this is an urgent issue that needs to be addressed to prevent financial risks and boost social confidence.“

Hu said he had suffered a total loss of more than 70,000 yuan ($9,857) since he started investing in the stock market last June.

As someone deeply immersed in the financial world, I can attest to the gravity of the situation described in the provided article. My expertise in financial markets and economic trends positions me well to dissect and elaborate on the nuances embedded in the narrative. The evidence provided by the alarming statistics, market indices, and statements from reputable financial institutions such as Goldman Sachs underscores the severity of the issues facing Chinese and Hong Kong stocks. These losses, totaling a staggering $6 trillion over the past three years, are indicative of a deep-rooted crisis in investor confidence.

The article delves into the multifaceted challenges plaguing the Chinese economy, ranging from a real estate downturn and deflation to a falling birthrate and ideological shifts in policy. My knowledge allows me to connect these dots, understanding how each element contributes to the overall economic landscape. The comparison of China's economic growth, slowing to 5.2% in 2023 and expected to further decline, reveals the structural nature of the slowdown, a point that resonates with my extensive understanding of economic principles.

The narrative also highlights the role of the Chinese government and its efforts to stabilize the situation. Reports of Beijing's interventions, such as asking banks to sell dollars and considering a stock market stabilization fund, are indicators of a government grappling with economic challenges. My expertise enables me to analyze these measures, their potential impact, and the underlying motivations.

Furthermore, the article touches on global implications, including the impact of US-China tensions on investment and the international community's reaction to China's economic troubles. These geopolitical aspects align with my comprehensive knowledge of global financial dynamics.

In conclusion, the evidence presented in the article paints a bleak picture of the Chinese stock market's current state and its implications for the broader economy. My depth of knowledge allows me to dissect these complex financial dynamics, providing a comprehensive understanding of the challenges faced by investors and policymakers alike.

Analysis: Chinese stocks have lost $6 trillion in 3 years. Here’s what you need to know | CNN Business (2024)


Analysis: Chinese stocks have lost $6 trillion in 3 years. Here’s what you need to know | CNN Business? ›

What's driving the meltdown? In short, investors are worried about the lack of effective policies from Beijing to spark a sustainable economic recovery. China's economy grew 5.2% in 2023. That was its slowest pace of expansion since 1990, with the exception of the three pandemic years through 2022.

Have Chinese stocks lost $6 trillion in 3 years? ›

Hong Kong, Jan 23 (IANS) Over the past three years, about $6 trillion -- equivalent to roughly twice Britain's annual economic output -- has been wiped off the value of Chinese and Hong Kong stocks, a media report said.

Why are Chinese stocks down so much? ›

China's well-documented economic struggles have led to broad declines in its stock markets over the past year, as growth was weighed down by a slump in real estate and exports. The Chinese government is targeting 5% growth in 2024, having notched 5.2% in 2023.

Why is Chinese market falling? ›

Chinese stock indexes touched multi-year lows in February. The selloff was a culmination of months of frustration over the sputtering economy and a lack of forceful policy stimulus measures.

Is China stock market Crashing? ›

Investors are Bearish on the Chinese Market

Every index tracking China share prices had a terrible 2023, with the declines continuing through last month. That includes indexes in China's markets, Hong Kong, and those tracking Chinese companies on Wall Street.

What is the biggest stock loss ever? ›

The largest single-day percentage declines for the S&P 500 and Dow Jones Industrial Average both occurred on Oct. 19, 1987 with the S&P 500 falling by 20.5 percent and the Dow falling by 22.6 percent. Two of the four largest percentage declines for the Dow occurred on consecutive days — Oct. 28 and 29 in 1929.

What was the biggest stock loss in history? ›

The Dutch Tulip Bulb Market Bubble, also known as Tulipmania took place in 1637. Oct. 19, 1987, also known as Black Monday, marked the largest one-day stock market decline in history. The 2020 Coronavirus Stock Market Crash lasted several months.

Is it good time to invest in China stocks? ›

At Coutts we're currently neutral on Chinese stocks. This is because of structural challenges sitting behind China's stock market drop, and the state intervening in markets to spend excess cash from a huge trade surplus. For us, this doesn't represent a very solid foundation on which to grow.

Is China in trouble for the economy? ›

China's economy is at a turning point. An old economic model underpinned by heavy investment in infrastructure and real estate is crumbling. Growth is slowing and prices are falling, raising the specter of a Japan-style slide into stagnation. How did the world's second-largest economy get into such a mess?

Is China's economy good? ›

China has grown to have the second largest economy in the world, second only to that of the United States. Some forecasters predict that in the coming decades, China will grow to have the largest economy based on its Gross Domestic Product (GDP).

Can Chinese citizens invest in US stocks? ›

There is no citizenship requirement for owning stocks of American companies. While U.S. investment securities are regulated by U.S. law, there are no specific provisions that forbid individuals who are not citizens of the U.S. from participating in the U.S. stock market.

Are China stocks recovering? ›

The rebound is promising, soothing three years of losses when the index tumbled from its all-time high in February 2021. In all, almost US$10 trillion have been erased from Chinese stocks listed at home and overseas over the past three years.

Are China stocks undervalued? ›

The stocks of these Chinese companies with wide economic moats are the most undervalued according to our metrics as of April 10, 2024. Here's a little more about each of the best Chinese stocks to buy, including commentary from the Morningstar analyst who covers the company.

Is the Chinese economy crashing? ›

China is in the midst of a profound economic crisis. Growth rates are flagging as an unsustainable mountain of debt piles up; China's debt-to-GDP ratio reached a record 288% in 2023.

How much has the Chinese stock market lost? ›

China and Hong Kong stocks lost nearly $5 trillion in 3 years — more than India's market cap. Stocks in China and Hong Kong sold off a massive $4.8 trillion in market capitalization since 2021, which according to HSBC, is more than the value of the Indian stock market.

Will Chinese tech stocks ever recover? ›

In Hong Kong, tech stocks briefly surged into a technical bull market, having risen more than 20 per cent from a low on January 31. The rebound is promising, soothing three years of losses when the index tumbled from its all-time high in February 2021.

What is the average return of Chinese stocks? ›

Conclusion. Under the original buffett indicator, the stock market of China is expected to return 10.0% a year for the coming years. This is from the contribution of economic growth in local current prices: 5.39%, Dividend Yield: 2.75% and valuation reverse to the mean 1.82%.

What is the average return of the Chinese stock market? ›

Average returns
PeriodAverage annualised returnTotal return
Last year-16.4%-16.4%
Last 5 years-5.5%-24.5%
Last 10 years3.9%46.9%
Last 20 years7.3%312.7%

Top Articles
Latest Posts
Article information

Author: Pres. Lawanda Wiegand

Last Updated:

Views: 6204

Rating: 4 / 5 (71 voted)

Reviews: 94% of readers found this page helpful

Author information

Name: Pres. Lawanda Wiegand

Birthday: 1993-01-10

Address: Suite 391 6963 Ullrich Shore, Bellefort, WI 01350-7893

Phone: +6806610432415

Job: Dynamic Manufacturing Assistant

Hobby: amateur radio, Taekwondo, Wood carving, Parkour, Skateboarding, Running, Rafting

Introduction: My name is Pres. Lawanda Wiegand, I am a inquisitive, helpful, glamorous, cheerful, open, clever, innocent person who loves writing and wants to share my knowledge and understanding with you.