China’s stock markets set to weather global storms
Chinese stocks tumbled on Tuesday following an intensified global market rout, but equity analysts said they remained positive on the midand long-term market prospects given China’s resilient economic fundamentals.
The benchmark Shanghai Composite Index declined by 3.35 percent, the biggest singleday drop in nearly two years. The Shenzhen Chi-Next Index, which tracks stocks listed on the startup board, suffered even heavier selling, dropping 5.34 percent to a three-year low.
Equity analysts said the dramatic selling in Shanghai and Shenzhen was driven by investor sentiment influenced by the plunge in overseas markets, rather than being triggered by any worsening economic fundamentals.
“The fall is clearly a repercussion of the US market crash in the previous day,” said Chen Jiahe, chief strategist at Cinda Securities.
“Opportunities may emerge because of the plummeting prices, especially stocks with a low valuation and solid fundamentals. After all, China has a nominal per capita GDP of 15 percent of that of the United States, meaning that the growth potential is still huge for this country and its listed companies,” Chen said.
Wall Street had its worst day on Monday since the 2008 financial crisis, with the Dow Jones Industrial Average Index suffering its biggest single-day fall ever, losing more than 1,100 points or 4.6 percent at the close.
The catalyst for the US market plunge was the country’s job figures, which showed wages grew faster than expected, sparking investor concern of the greater possibility of inflation and faster-than-expected interest rate hikes by the Federal Reserve.
In China, there have also been concerns that intensified financial tightening and the clearing up of risky assets in the country’s rapidly growing shadow banking sector may exert pressure on the stock market.
Chinese financial regulators will likely announce new regulations for the asset management industry in March, as part of the country’s ongoing effort to curb systemic financial risks, Chinese business magazine Caixin reported on Tuesday.
The regulators have required some financial institutions to suspend the offering of investment products with complex structures and high trading leverage, Chinese media reported citing people with knowledge of the matter.
Smaller-cap stocks already suffered big losses last week as a result of tightening regulation as investors dumped the expensive stocks of companies without the support of a favorable earnings outlook.
Whether Tuesday’s market fall would trigger the risks of margin calls and forced liquidations are still being studied and monitored by investors and regulators.
Given that the current market valuations are still within a reasonable range, most analysts believed that the likelihood for a substantial market stampede in China’s equities market is much lower than that in the summer of 2015 when the A-share market witnessed a dramatic rout.
Andrew Tilton, chief Asia economist at Goldman Sachs, said it is encouraging that China managed to maintain a good growth rate last year and that policymakers have moved to rein in the country’s rapid debt buildup.