• Amid a challenging start for China’s stock market in 2024, policymakers are contemplating a stabilization fund of 2 trillion yuan sourced mainly from state-owned enterprises’ offshore accounts.
• Chinese authorities plan to use the stabilization fund to purchase onshore shares through the Hong Kong exchange link, seeking to counter the market’s slump.

The Chinese stock market has been experiencing a tumultuous start to the year, grappling with factors such as patchy economic growth and a renewed slump in home sales. In response to the market’s downturn, Chinese authorities are reportedly contemplating measures to stabilize the situation. Bloomberg News, citing sources familiar with the matter, revealed that policymakers are exploring options to mobilize around 2 trillion yuan ($278.53 billion), primarily sourced from offshore accounts of state-owned enterprises.

Stabilization Fund and Offshore Investments

To address the slumping stock market, authorities are considering the creation of a stabilization fund. The plan involves utilizing the mobilized funds to purchase shares onshore through the Hong Kong exchange link. While Chinese stocks initially surged after the news broke, they later reversed course, prompting a cautious response from underwhelmed investors. The China Securities Regulatory Commission has yet to comment on these developments, leaving market participants eagerly awaiting official statements.

Market Response and Key Index Movements

The market response to the proposed measures was marked by an initial uptick in Chinese stocks, only to witness a subsequent downturn. The blue-chip CSI300 Index, lingering near a five-year low, and the Shanghai Composite Index, remaining below the psychologically crucial 2,800-point mark, reflect the challenges faced by the Chinese stock markets.

Government Commitment and Investor Sentiment

Following a meeting chaired by Premier Li Qiang, the cabinet announced its commitment to injecting mid- and long-term funds into the capital market. This move aims to strengthen stability and promote healthy development in the face of economic uncertainties. However, some investors, such as Aninda Mitra from BNY Mellon Investment Management, express concerns about the adequacy of the measures, pointing out that they represent under 2% of China’s GDP.

Global Perspectives and Foreign Investment Trends

Global money managers, who have been divesting from Chinese stocks amid a post-pandemic recovery slowdown, emphasize the need for significant stimulus to revive the property sector, which once constituted a quarter of the Chinese economy. Overseas funds, particularly European active funds and Hong Kong passive money, have sold approximately $1.6 billion in Chinese equities this year, according to a report by Morgan Stanley.

Domestic Investment Strategies and Policy Considerations

On the domestic front, Chinese investors are also exhibiting reluctance towards stocks. Bloomberg’s report reveals that Chinese officials are contemplating various options, including allocating at least 300 billion yuan of local funds to invest in onshore shares through entities like China Securities Finance or Central Huijin Investment. Additional measures may be announced in the coming weeks, pending approval from top leadership.

In conclusion, as Chinese authorities navigate the challenges posed by a struggling stock market, their proposed measures aim to instill confidence and stability. However, with skepticism from investors and the need for more substantial economic stimuli, the path to recovery for China’s stock markets remains uncertain. Market participants eagerly await further developments and official statements to gauge the effectiveness of these proposed interventions.