China’s market rescue is failing as Xi holds back on stimulus - Times of India

Chinese regulators are struggling to convince global investors to put their money in Chinese stocks. Despite recent efforts to boost market sentiment, such as urging financial institutions to buy stocks and asking companies to increase buybacks, the MSCI China Index continues to decline. According to Karine Hirn, a partner at East Capital Asset Management, investors are disappointed with the lack of concrete measures to support economic growth. Moreover, the ongoing political tensions between China and the West are also contributing to the downward trend in the market. In fact, the MSCI China index has already fallen 11% this month, making it the worst performing month since October. Country Gardens Holding Co., once the largest developer in China, has seen a significant drop in its stock value due to concerns about a possible default on its dollar debt.

International investors have been pulling out a significant amount of money from the mainland market, selling off nearly $11 billion over a period of 13 days until Wednesday, which is the longest streak of withdrawals since Bloomberg began tracking this data in 2016. Analysts from Wall Street, including Morgan Stanley and Goldman Sachs Group Inc., have also become more pessimistic, lowering their expectations on Chinese stocks in the past week despite starting the year with a positive outlook. Despite promises of pro-growth policies from the country's top leaders at the Politburo meeting on July 24, there has been little action taken to counter the economic slowdown. This has brought attention to President Xi Xinping's determination to move away from the growth model fueled by debt that his predecessors followed.

China's government is once again defying expectations, just like it did in 2021 when it cracked down on private businesses, according to Matt Maley, the chief market strategist at Miller Tabak + Co. Maley says that Chinese officials are not responding as strongly as expected to the economic downturn, showing that China is not concerned about what others think and will do what they believe is best for them. The latest economic data is concerning, with bank loans reaching a 14-year low in July, deflation occurring, and a contraction in exports. Zhongzhi Enterprise Group Co., one of China's largest shadow banks, has also stopped payments on many high-yield investment products, raising concerns about the impact on the struggling property market. Now, Morgan Stanley, JPMorgan Chase, and Barclays Plc predict that China will not meet its government-set growth target of around 5% for 2023. This is a far cry from the belief earlier this year that the target was too conservative.

“Concerns about the lack of policy response are being expressed by individuals,” stated Dave Perrett, the co-head of Asian Investment at M&G Investments. “When looking ahead in the next three to six months, people are not optimistic about the economy improving and are worried about the possibility of contagion.” The recent decline in the markets comes after several years of underwhelming performance. As a result, the gap between China’s financial markets and those of the US has significantly widened, reaching almost unprecedented levels. Chinese stocks and currency are now at their lowest point relative to their US counterparts since at least 2007. Investors seeking security and the implementation of looser monetary policies have contributed to the rise in Chinese government bonds, causing the yield difference between two-year debt and US Treasuries to be the largest since 2006.

According to Xiadong Bao, a fund manager at Edmond de Rothschild Asset Management in Paris, the data suggests that international investors have less confidence in justifying the risk they are taking for Chinese stocks compared to other assets with a better perceived risk-reward ratio. Despite this, officials are still hoping to persuade foreign investors. The securities regulator plans to hold a meeting in Hong Kong with some of the largest asset managers in the world, including Fidelity International Ltd. and Goldman Sachs, as reported by Bloomberg News on Friday. Matthew Poterba, a senior analyst at Richard Bernstein Advisors, stated that global fund managers are searching for evidence of an improving economy. Poterba mentioned that foreign investors have a highly negative outlook on Chinese stocks at the moment, with many managers having limited investments in Chinese stocks and requiring more solid signs of a sustainable recovery before gradually increasing their involvement.