The mainland’s economy is extremely weak, and the market has long been expecting the authorities to put forward a range of effective measures to rescue the market to support the important pillars, such as the domestic housing sector, which is on the verge of collapse. However, such measures are nowhere in sight. To date, after entering the new year, the stock market is still showing no sign of improvement. Since the first business day of the new year, there was only one day that recorded a rise; the rest were all in the red.
The Hang Seng Index (HSI) fell another 350 points Jan. 16, closing below the 16,000 mark at 15,865, and dropped a further 589 points on Jan. 17 to 15,276, setting the lowest closing in 14 months.
Tencent (00700) fell 2.4 percent, Alibaba (09988) dropped 2.3 percent, Meituan (03690) fell 2.3 percent, JD.com (09618) fell 3.4 percent, Hong Kong Stock Exchange (00388) fell 4.1percent, HSBC Holdings (00005) fell 3.0 percent. The best and the worst performers among all blue-chip stocks are, respectively, China Unicom (00762), which rose 0.8 percent, and Tingyi (00322), which fell 5.7 percent.
It is reported that Sino Biopharmaceuticals (01177, -3.5 percent) discontinued its production of Kexing, the locally made COVID-19 vaccine, but it does not involve impairment risks.
The Bank of East Asia (BEA) said that the earnings per share of the HSI in 2024 is expected to increase by 10 percent year-on-year, with the 12-month target expected to be at 19,500, corresponding to a predicted P/E ratio of about nine times.
At stop press, the value of Brant crude decreased by 0.5 percent to US$ 78.1 per barrel. The “three oil powerhouses of China” also ended soft, with PetroChina (00857) falling 1.1 percent, CNOOC (00883) falling 0.6 percent, and Sinopec (00386) falling 2.0 percent.
In addition, the mainland property market has continued to be sluggish, and developers such as China Evergrande (03333), Country Garden (02007), and Ocean Group (03377) have experienced debt defaults one after the other, as well as cash flow shortages, causing the stock market to remain lack-luster in the recent past.
IMF Managing Director: Mainland China Needs Structural Reforms
Kristalina Georgieva, Managing Director and Chairperson of the International Monetary Fund (IMF) said that China needs to conduct structural reforms to prevent a sharp decline in economic growth.In November 2023, the IMF raised its forecast for China’s economic growth to 5.4 percent. However, it expected China’s economic growth to slow to 4.6 percent this year, and issued a warning on the continuing dilemma in the real estate sector.
Ms. Georgieva pointed out that China is facing both short and long-term challenges. In the short term, the real estate sector still needs to recover, and the debt level of local governments is still high. In the long run, the challenges include demographic changes (decline) and low consumer confidence.
She believes that, ultimately, structural reforms in China will continue to open up the economy and balance the growth model so that it focuses more on domestic consumption, which means increasing people’s confidence and making them spend more rather than over-save. Without the reforms, she said, economic growth would plummet to below 4 percent.
CCP Demands Certain Institutions Not to Sell Stocks
With the CCP’s lack of expertise in managing the situation and its available resources not as strong as before, it has no choice but to keep telling the market “not to sell its stocks.” This week, the “Financial Times” quoted traders and fund managers of three financial institutions as saying that the mainland authority has again demanded certain institutional investors not to sell stocks.Since October 2023, mainland regulators have reportedly provided some investors with “window guidance” to prevent net stock selling on certain days. Beijing has reimposed such restrictions on securities firms after easing them on some smaller mutual funds and brokerages earlier this year.
However, directors of securities firms subject to “window guidance” believe that this “window guidance” practice only delays selling pressure temporarily, and it is never able to delay that forever, as market sentiment will eventually determine the direction of the market.
In the midst of a complete lack of fluidity across all sections of the country, Sunac China (01918) has reportedly put up at least four cultural tourism projects for sale by auction in one month, including Wuhan Ganlu Shan Cultural, Creative City (reserve price of 1.099 billion yuan), and Chengdu Sunac Shibai Pavilion Hotel, and Chengdu Sunac Hyatt Hotel, but interest has been shown so far.
Market Not Optimistic About the CCP’s Ability to Save It
Cai Zi, a columnist for “Talking about Stocks and Gold,” believes that with domestic housing and local debt issues so far unresolved, it is not surprising that the HSI fell below the 16,000 mark. Hong Kong stocks are prone to fall but hard to rise. After news of the IMF Chief’s call for reforms, CCP’s recent reiteration of its request for some institutional investors not to sell stocks (a negative signal), and the lack of interest in the sale of Wuhan’s tourism project.He added that there is a lot of talk in the market that the CCP seems to have run out of administrative means to rescue the market. He said the performance of the HSI is just a true reflection of the current market expectations.
