Hopes are building for a rescue of Chinese stocks after a drubbing that erased $7T from mainland equities and shares in Hong Kong since their peaks in 2021. An expected rebound from strict zero-COVID measures has failed to materialize, prompting policymakers to consider new ways to stabilize the stock market, with risks to consumer confidence threatening another downward spiral. "China's equity market followed up a very weak 2023 with another 10% loss in the first three weeks of 2024," Principal Financial Group noted in a new SA article, China Outlook: Market Rescue Welcomed, But More Needed.
Growth challenges: Two other major issues were recently flagged in Wall Street Breakfast that highlight the problems facing the world's second-largest economy. Evergrande (OTCPK:EGRNQ), the world's most indebted property developer, was finally ordered to liquidate last week, spelling further trouble for the Chinese construction industry which accounts for as much as a quarter of GDP. A longer-term growth issue is related to demographics, with China's shrinking population set to sap the nation of a key source of labor and demand.
Looking to end the country's stock market rout, fresh reports overnight suggested that the China Securities Regulatory Commission and other regulators will soon update top authorities on a range of policy initiatives. China's blue-chip CSI 300 Index soared 3.5% on the news, while small-cap equities recorded an even bigger bump, with the CSI 1000 Index jumping 7%. Support could range from direct stimulus measures to those geared toward property stabilization, but investors sizing up the situation will be looking for concrete actions or a coordinated response to assuage their concerns.
Will it impact the U.S.? Fed Chair Jay Powell touched on the matter during a 60 Minutes episode that aired on Sunday, saying China had moved away from a "market-led growth model" in favor of state-owned enterprises and there was "still too much associated with real estate investment." He also pointed out that economic relations are not deeply intertwined with the American financial system, but rather mostly consist of the U.S. buying Chinese manufactured products. As long as that is the case, that would mean minimal implications, according to Powell. "We may feel them a bit, but they shouldn't be that large."
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