Watchman: China’s Stock Market Is in Free Fall


After a challenging couple of years for the Chinese economy, the country's stock market appears to be in free fall, with officials urging institutional investors not to sell assets in an effort to keep share prices stable as foreigners withdraw.

Chinese equities slumped on Monday as the central bank decided to hold its medium-term policy rate at 2.5 percent instead of cutting it as expected. The country's CSI 300 plummeted to its lowest level since 2019, shattering the previous record established in October 2023.

Today's index was up 0.006% from Monday, but it was down 25.64% from a year ago. Global markets, on the other hand, have climbed in the last year, with the S&P 500 expected to gain 24 percent in 2023 to a record high.

While the CSI 300 has progressively declined over the last year, the MSCI World index, which includes large- and mid-cap representation from 23 Developed Markets (DM) countries, has steadily increased since the beginning of the second quarter in 2023.

China's market officials have attempted to calm the market by imposing restrictions that ban some investors from being net sellers of equities on specific days. This strategy, in which officials provide "window guidance" to aid the country's stock market recovery, was introduced in October.

Until recently, the authorities' constraints appeared to be functioning as intended, with the benchmark CSI 300 stock index rising 3% in the last week of 2023, according to the Financial Times.

However, this tiny victory was reversed in the first week of 2024, when authorities were forced to remove limits on several smaller mutual funds and brokers in response to growing customer redemptions, causing the index to decline more than 4% this month.

China's central bank, the People's Bank of China (PBOC), has little leeway to improve the country's economy as the Chinese yuan has weakened in recent months, and the bank is likely to want to minimize further currency depreciation. This year, the yuan has already lost more than 1% of its value against the US dollar.

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