What Just Happened With Chinese Stocks? #Finance

hey everyone welcome to the plane Bagel I’m your host Richard coffin it’s been a couple of years since my Finance feed on YouTube first informed me of the

imminent collapse of China and while the country and their economy has moved well beyond the initial doomsday deadline of 34 Days by a couple of years now it’s pretty clear to see that the country has had a tough go recently ever since their intense lockdowns during the pandemic they

haven’t managed to experience the sort of rebound that many other countries did and with China still grappling with a Real Estate crisis and falling property prices is sentiment has been pretty negative so with all that and US seemingly overdue for the predictions of YouTube

to unfold you might be shocked to hear that over the last few weeks China’s Stock Market became one of the best performing Markets of 2024 after a rise in stock prices

and not just any Rising prices but the strongest single day rally for Chinese stocks since 2008 with the CSI 300 Blue Chip index and the Shanghai Composite Index both rising over 8% over a single day and both climbing 30% from trough to Peak in less than a month’s time before settling lower

it seems that sentiment in the space has completely flipped with the fear and greed indicator of the Shanghai Composite Index rising to its highest point since 2015 this past Monday and as you would expect this kind of performance has drawn a lot of attention back to Chinese

href="https://cashnews.co/markets" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Markets uh Chinese stocks have been in a pretty bad rut the last few years given uh some of the factors we mentioned earlier uh but this latest rally has driven such unprecedented demand into

the Stock Market specifically from domestic investors that we’ve actually seen domestic Brokers running overtime and running into technical issues given the amount of accounts being opened so what’s going on with China has their property crisis been

cancelled well no uh but the recent rally has been tied to government announcements around a slew of stimulus measures that are being introduced to bolster the economy and attempt to put an end to the property crisis and given that China has been such a subject for pretty extreme claims one way or

the other I wanted to to chime in and give a quick update on on what we’re seeing with the Chinese stock Markets what’s causing this uh recent Surge and uh just check in overall

since it’s been a while since we’ve talked about China as we’ve highlighted in past CashNews.cos the Chinese economy has been struggling with a number of headwinds over the last few years uh there was the pandemic which greatly impacted their economic output the property crisis

that began when the government started to crack down on over levered property developers like evergrand and those developers in turn began defaulting on their obligations uh which sent property prices downwards and because Real Estate is such an important investment category in

China representing 70% of household wealth in roughly a quarter of GDP output it’s had pretty broad implications for their economy the country experiencing Bank runs high youth unemployment and overall weak consumer demand which is in part contributed to slowing economic growth and even

periods of deflation or falling prices which many economists view as a warning sign for a struggling economy and up until recently outside of some monetary stimulus measures and smaller interventions the Chinese government hasn’t really introduce any groundbreaking policies to try and offset

this decline which led many economists to question whether the country would be able to achieve its Target GDP growth rate of 5% something that mind you is even there well below its historical rate but in late September it seemed that their approach had changed as Chinese leaders announced a slew

of measures to try and support their economy first on Tuesday September 24th the governor of the People’s Bank of China Pang gong Shang announced a bunch of monetary stimulus measures to try and support the economy and stem falling property prices with them reducing the required Reserve ratio

for banks effectively allowing them to lend out more while keeping less money on hand lowering the minimum down payment for properties to 15% cutting Interest Rates not just for new Loans but also outstanding mortgages um meaning that those who already have a

Loan on their property will see the Interest Rates they’re paying decreased by .5 percentage points and among a couple of other things even announcing a program to encourage borrowing money for the purpose of investing with the bank easing borrowing

restrictions introducing a 500 billion Yan swaps facility for financial institutions to borrow from to buy stocks and a 300 billion youu on fund that will offer for cheap Loans to commercial Banks who want to in turn lend that money out to companies for the purpose of buying back

their own Shares measures clearly targeted at not just supporting property prices but also prices for publicly traded stocks with the stimulus measures representing the largest intervention from the Central Bank since the pandemic and if all that wasn’t enough for you on the

following Thursday Chinese leaders at the monthly meeting for the political Bureau of the Central Committee of the Communist Party of China or Poli Bureau for short really got Markets revving

by vowing to deploy sufficient fiscal spending to ensure the economy would meet its 5% economic growth Target for the year with notes including calls to increase the scale of monetary policies further Hal the decline of the Real Estate market and promote the stability and financing

of certain property projects with the latter move seemingly being more notable as a marked a stark shift in the rhetoric of the party uh moving from a more cautious tone to one that increased confidence that the government would do whatever it takes to combat this Decline and as highlighted

previously all these anoun ments have been quite the Boon for Chinese stock Markets which mind VI themselves have had a pretty uh tough few years not only did they struggle with lockdowns uh

the property crisis and just overall declining economic activity but we also saw the government crack down on some of their largest tech companies moves that naturally caused a lot of pain for some of the country’s largest stocks such as with Alibaba a company that many of view as the Amazon

of China who lost nearly 80% of their value after the government finded the company and forced them to break off a number of their businesses over antitrust concerns and although while businesses were grappling with new Anti-Trust data and labor regulations domestically they also faced the threat

of their Shares being delisted in the United States something that would cut off these companies from the biggest Financial Market in the world and naturally hurt their Valuations and while the initial thread of being delisted in 2024 was put off by an audit

agreement between the US and China stocks for Chinese companies were still down roughly 25% from the end of 2021 but seemingly these recently announced stimulus measures succeeded in boosting investor confidence boosting the Shanghai and Hong Kong indices to their highest points in 2022 and drawing

in investor demand and not only from Hedge Funds and US Traders interested in Profiting from China’s growth but even from retail investors within China itself with the country seing record trading turnover and an unprecedented wave of requests for opening

trading accounts even prompting some funds to introduce caps for how much investors were able to buy in and what makes this notable for China is that Stock Investing isn’t particularly popular in the country on aggregate stocks make up a prettyy small fraction of household wealth when

compared to other nations with Chinese citizens seemingly preferring to put their money into Real Estate not only because of restrictions imposed on investing in the country but also because Chinese stocks have proven pretty volatile in the past with many wondering if this will

reflect a longer term trend of of interest in the Stock Market within China and naturally the the whole rally of the market drawing a lot of attention elsewhere from outside the country with many money managers seemingly dipping their toes back into Chinese stocks and returning

after the Market’s Mass Exodus but does this all really Mark a turning point for China’s property crisis their Stock Market and economy as a whole well perhaps uh but so far economists have been pretty lukewarm on the stimulus measures announced to date with a number of

experts suggesting that these moves won’t be enough to address underlying issues that are ultimately causing the country’s struggling economy with some further questioning whether the government will deliver on its vague promises for fiscal action and in fact this past Tuesday we saw

stocks reverse course with their biggest drop since 2008 after a disappointing press release by the chairman of the national development and Reform Commission which seemed to lack details on the promised further fiscal stimulus so while this does seem to Mark a pretty clear shift in the Chinese

government’s approach with its uh property crisis there remains a lot of work to be done there while these measures improve Liquidity for the Markets there remain

problems around consumer confidence and whether we’ll actually see higher lending activity even with this excess money available and with Real Estate demand still on the decline with new home sales falling 27% year-over-year in August and large property developers like

country garden still in financial turmoil and likely going through a painful deleveraging and again with so much household wealth tied to property values the econom is very likely to require further intervention to avoid a more painful decline with even hedge fund manager Ray doio highlighting that

policy makers need to quote do what it takes which will require a lot more than what was announced and we’ll just have to wait and see how things further develop for the people of China nonetheless with all that stocks still remain up quite a bit uh which has still maintained a lot of

attention from investors outside of China especially with the golden dragon index an index which represents stocks listed in the US but who have most of their business within China is still up over 30% even after its recent pullback and naturally a lot of individual investors are wondering whether

now is the time to add Chinese positions to their Portfolio and of course in line with all my other CashNews.cos on this channel I can’t tell you what the right move is I I have no way of knowing whether the Chinese market will be the best performing Stock

Market Market this next year or the worst but it is worth highlighting that while there might be opportunity within the Chinese market Chinese stocks are a pretty tricky area to navigate on the one hand with over 17% of the world population living in China and their importance to the

global economy it’s naturally a market worth keeping an eye on stocks are also relatively cheap when you look at things like PE ratios and historically while growth rates for the economy have slowed the Chinese economy has had a high growth track record so if we saw recovery it could really

bolster performance that all being said on the other hand uh there is a reason why stocks in the country are particularly cheap outside of the ongoing issues that we mentioned earlier Chinese stocks have had concerns raised over the accuracy of their Financial Statements in the

past in PH pretty meaningful and unpredictable geopolitical and Regulatory risks uh the Chinese government is very Hands-On and controlling of their publicly traded stocks and has in the past made very drastic shifts in policy that hurt their company’s performance and it’s not just

internally that these stocks face risk there’s also the United States which itself has its upcoming election and candidates like Donald Trump threatening a 60% trade tariff on Chinese Goods if he is elected and even outside of that the US has in the past explicitly moved to restrict us

investment in Chinese companies something that if you currently have an investment in China could hurt your return so the reason stocks are so cheap and volatile in China is because many investors have this genuine fear that any day one government or the other could introduce a change that strips

away their entire investment especially given that many North American investors actually invest in Chinese stocks through American depository receipts that actually reflect ownership of a Cayman Islands holding company with ties to the Chinese business rather than Shares of the

business itself since China restricts foreign investment in certain Industries and this complex legal structure could put investors at risk if either country were to ever crack down on

this quasi Equity Arrangement and while China is a very important economy and historically a fast growing one it’s important to recognize that growth of the economy doesn’t always translate into growth of the Stock Market in fact one paper titled

economic growth and Equity returns found that between 1900 and 2002 these two variables actually had a negative correlation in part because economic growth can come from more companies entering the market rather than a handful of positions capturing all the growth and the fact that

large multinationals that are based elsewhere can capture some of that growth themselves so all the Chinese market does seem to have a lot of opportunities you just need to be aware that it’s a very different ball game from other stock bold; color: #1a73e8; text-decoration: none;">Markets and we’ve seen the space experience drastic rallies and contractions such as back in 2015 as well as false Dawns uh most recently for example in February of this year where stocks climbed over 10% only to eventually lose all of those

gains and in addition to doing your typical due diligence or researching a company understanding the risks they face just through uh the normal course of their operations you do have to factor in these more unpredictable external forces uh when assessing a position and deeming how much of your

Portfolio you’re going to invest we could see stocks move higher and possibly even turn around on further stimulus announcements with many investors expecting further measures to be announced this weekend but these geopolitical and Regulatory factors really are unpredictable

no matter how much research you put in and so as an investor you need to consider these no one unknown when assessing risk here and while we have seen this jump in Chinese stocks that will only be sustainable if we actually see the fundamentals of companies follow through anyway that’s a

CashNews.co thanks for joining me today if you like this CashNews.co please do make sure to like subscribe all that good stuff does help the channel tremendously and let me know your thoughts on the Chinese market down below uh what your views are on the current economic situation uh whether

you’re interested in the space or you’ve been burned in the past and you never want to touch it again any and all thoughts are welcome uh thanks again for joining me and as always be safe out there