China’s stock market faced a tumultuous 2023, and the downturn intensified in the early weeks of the new year after Beijing dashed hopes for additional support to revive the struggling economy.
On Monday, Hong Kong’s Hang Seng Index dropped by 2.3%, closing at its lowest level since October 2022. The index has incurred a loss of over 12% this month, nearly matching the total loss in 2023.
The mainland’s Shanghai Composite Index experienced a substantial 2.7% decline, marking its most significant daily drop since April 2022. The Shenzhen Component Index, dominated by tech stocks, had its worst day in nearly two years, plummeting by 3.5%. These indexes have collectively declined by 4.8% and 7.7% in the first trading days of 2024.
This challenging start to the year echoes the difficulties faced in 2016 when Chinese stocks struggled after a market crash in 2015. At that time, a burst bubble, coupled with economic strain and inflated share prices, led investors to divest from their holdings.
Recent factors contributing to the market turmoil include a real estate crisis, the slowest non-pandemic growth in decades, and a regulatory crackdown on certain businesses, all eroding investor confidence.
Ken Cheung, Chief Asian Foreign Exchange Strategist for Mizuho Bank, noted that foreign investors were actively reducing their risk exposure to China due to “bearish expectations” for business conditions, citing the government’s lack of effective measures to address the property crisis and stimulate economic recovery.
Investor disappointment deepened when China’s central bank decided to maintain its benchmark lending rate on Monday. The absence of a rate cut, which could have lowered borrowing costs and stimulated economic activity, added to the market’s concerns.
These substantial losses in 2024 follow a challenging year in 2023, where the CSI 300 index, comprising major stocks listed in Shanghai and Shenzhen, fell by more than 11%. In contrast, the US S&P 500 index grew by 24% in 2023, Europe’s index expanded by almost 13%, and Japan’s Nikkei 225 soared by 28%.
Investor anxieties were further heightened by demographic data indicating that China’s population is ageing and shrinking. The absence of new government stimulus measures in a recent speech by Chinese Premier Li Qiang at the World Economic Forum contributed to these concerns.
Analysts at ANZ Research, Brian Martin and Daniel Hynes, expressed in a research note that Li’s speech had “doused” expectations for further support measures, emphasizing the nation’s commitment to achieving a 5% growth target without resorting to extensive economic stimulus.
In recent months, Beijing has issued $137 billion in government bonds, primarily allocated to infrastructure projects, and China’s sovereign wealth fund has intervened by purchasing shares to support the faltering stock market.
