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There has been only one trading day this week in China. But no matter: that one day more than made up all the losses for this year.
Global investors are betting on China for a rebound, more than three years after they shunned the market as regulatory crackdowns hit the country’s biggest tech groups. Chinese markets are closed for most of the week for the so-called Golden Week holiday, as the country celebrates the 75th anniversary of the founding of the People’s Republic. On the last day of trade before the holidays on Monday, the benchmark large-cap CSI 300 index rose 8.5 per cent, joining in the festive mood with the biggest daily gain since 2008.
Still, investor sentiment remains fragile, especially among foreign investors. Industrial profits at large Chinese companies fell 17.8 per cent August, their first decline in five months, reflecting the ongoing economic slowdown. Producer prices have been falling since 2022, adding to deflation concerns.
That is reflected in the stock market: the CSI 300 index trades at just 12 times forward earnings, a significant discount to global peers. Earlier this year, that figure for the Shanghai Stock Exchange hit its lowest level in a decade.
Even at rock-bottom valuations, investors have continued to stay away. Over the past three years, shares have fallen 45 per cent peak to trough. During this time, investors have been disappointed as every small rebound was followed by a bigger decline. A revival in domestic demand — consumption accounts for more than half of China’s GDP — remains the biggest hurdle to reviving investor confidence and starting a lasting recovery for Chinese stocks.
The difference now is that the weakness in economic data had become too serious for Beijing to ignore. As recent data moved further away from the goal of 5 per cent growth this year, Beijing has made a rare, aggressive pledge to support an economic recovery through stimulus efforts, including $114bn in new funding facilities for stock purchases and cuts in borrowing costs. Given the ongoing property sector downturn, it is unlikely that economic data has bottomed. That means yet more government support measures can be expected in the coming months.
That may not be enough to win over battered foreign investors. But it will help bring back more retail investors — 200mn locals who account for 80 per cent of the total trading volume. That should at least be enough to give depressed markets a decent, near-term boost.