China’s stock market drops to pre-pandemic low

Chinese shares fell to the lowest level since before the Covid-19 pandemic, as Beijing’s latest efforts to prop up the country’s stock market failed to stem a sell-off driven by slowing economic growth, a liquidity crisis in the property sector and geopolitical tensions.

The CSI 300 index of large and liquid Shanghai- and Shenzhen-listed stocks fell as much as 1.3 per cent on Monday to about 3,463, marking the equity benchmark’s lowest level since 2019. The gauge has fallen about 15 per cent so far this year, in dollar terms.

Chinese equities outperformed global markets early in the pandemic and staged a rally at the start of this year on hopes of a rebound from disruptive zero-Covid policies.

However, a subsequent slowdown in growth and high-profile defaults on dollar debt by Chinese developers have prompted investors to dump China stocks, while a string of support measures launched since July by top officials — to “invigorate capital markets and land policies to boost investor confidence”, according to the politburo — have failed to halt the sell-off.

Global funds have also been unsettled by worsening relations between the US and China, with asset managers coming under pressure from Washington over investments in some Chinese companies listed in Shanghai and Shenzhen.

“Global investors need two floors before they get back into China — they need a floor for the geopolitics and a floor for the Chinese economy,” said an Asia-based senior capital markets banker at one Wall Street investment bank. “Only then they can start pricing things up.”

Offshore investors using Hong Kong’s Stock Connect programme to trade onshore Chinese stocks have sold a net Rmb169bn ($23bn) worth of shares since the start of August, leaving net inflows for the year down more than 70 per cent from their peak at just Rmb66bn.

Downward pressure on prices has persisted despite Chinese authorities rolling out support measures in recent weeks, some of which had not been deployed since the global financial crisis.

Earlier this month, the sovereign fund Central Huijin invested more than Rmb477mn in four state banks and pledged to buy more stock in the coming six months — the first such purchasing programme in eight years, in an effort to lift the broader market.

Since last week, dozens of mainland-listed companies, mostly state-owned companies such as China Petroleum & Chemical Corp and China Railway Construction Corp, have announced share buyback plans, adding to a pool of Rmb61.2bn share buybacks conducted so far this year on mainland stock markets, according to figures from data provider Wind.

“Share buybacks are more about the [market] sentiment,” said Si Fu, a China equity strategist at Goldman Sachs, who said the share price impact of such measures alone was likely to be limited.

But she added that the smaller than usual positions in Chinese stocks now held by both long-term investors and hedge funds would likely limit the scale of further outflows, and that “in the next three months, we think policy easing and momentum will support the market”.