Moves to aid stocks hindered by property market

Despite various interventions in the stock market, liquidity injections by the central bank, and increased restrictions on short selling, Chinese stocks are struggling to escape the downward spiral of the real estate sector’s troubles.

Property investment, a significant driver of China’s economic activity, continued to decline, and home prices experienced their sharpest drop in almost a year in September. This offset any optimism generated by third-quarter economic growth data.

The CSI 300 Index, the main Chinese stock index, fell by over 4 percent, marking its worst week in a year. This drop erased all the gains made during the reopening rally that started late last year. The market saw these declines despite a series of policies aimed at bolstering investor confidence, including tightening restrictions on short-selling.

Hao Hong, Chief Economist at Grow Investment Group, emphasised the need for solutions to major issues like the property market’s troubles and China’s relationship with the United States. He suggested that currently, “nobody cares about economic data.”

Global geopolitical tensions, particularly in the Middle East, contributed to the weakness in global stocks, exacerbating the challenges faced by China’s market. Foreign investors offloaded 24 billion yuan ($3.3 billion) of onshore stocks this week, the highest since August 18. Morgan Stanley cautioned against buying the dip, citing likely ongoing fragility in sentiment and the potential for continued foreign fund outflows.

A Bloomberg Intelligence gauge of Chinese developers’ stocks reached its lowest level since 2009 as efforts to boost the housing market failed to convince investors. Homebuyers remained cautious, and several major developers faced liquidity challenges.

Some market analysts are looking ahead to upcoming events, including politburo meetings, the Third Plenum, and a potential meeting between U.S. President Joe Biden and President Xi Jinping at the APEC Summit, as potential catalysts for the market.

China is reportedly considering the creation of a state-backed stabilisation fund to boost confidence in its $9.1 trillion stock market. However, the effectiveness of such measures remains uncertain, and the CSI 300 Index continues to face challenges, down nearly 10 percent in 2023. This puts the index on track for an unprecedented third consecutive year of losses, reflecting the high expectations investors have for positive news to reverse the current trend.

Tina Teng, an analyst at CMC Markets, noted that the recent government measures may not be enough to solve China’s economic issues, particularly in the property sector. Investors remain cautious, and sustained improvements in data are needed to convince them otherwise.