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A growing sense of worry is spreading on the Chinese financial markets.
Shanghai's benchmark stock index fell 20% in just five months to enter a bear market. The yuan is heading for its longest run of defeats in four years in Hong Kong. The corporate flaws are rising.
There are internal reasons for this concern: the nation's deleveraging campaign is reducing the amount of liquidity available – threatening the growth of the world's second-largest economy. Then launch an unpredictable trade war with the United States, and investors are faced with a long list of reasons to sell.
Official efforts to calm the nerves, from the reduction of reserve ratios to the publication of optimistic editorials in financial newspapers, have had little effect so far. The inability of the Shanghai Composite Index to exceed 3,000 level that would prompt state intervention – has reduced the appetite for bargain hunting. The gauge has been technically oversold over the past six days, the longest stretch since 2013, and losses on the stock market have totaled $ 1.8 trillion since January.
"The fundamentals in China are very bad," said Hao Hong, chief strategist at Bocom International Holdings Co. "The pressure on the market remains very strong."
The Shanghai Composite lost 0.5% Tuesday, led by energy and financial stocks. The Shenzhen index, very heavy in technology, had already entered a bear market in February. The MSCI China index of mainly offshore shares fell 14% from its peak of 2018.
Liquidation is a stark reminder of the speed with which things can be wrecked in China – only a few months ago, it seemed like investors were finally getting a better deal after years of disappointing returns. The Shanghai Composite had its best start of the year since 2009, while at the time the currency was growing at its fastest pace since at least 2007.
The fall to the earth looks more like the year 2015, when the bursting of a stock market bubble and the surprise devaluation of the currency shook global markets and pushed international fund managers to question the influence of the Communist Party on the economy. While officials finally managed to master the domestic markets, they sought to address the larger problem of over-indebtedness, which was to restrict the hidden channels of capital circulating throughout the Chinese financial system.
"Many onshore investors remain aware that the authorities still have deleveraging and financial risk reduction as a long-term goal, despite the desire to provide short-term liquidity," said Tai Hui, senior market strategist of JPMorgan Asset Management for Asia Pacific. "The feeling could remain cautious."
The Shanghai Composite tumbled 8.1% this month, its worst performance since January 2016, even as MSCI Inc. added the nation's shares to its global indicators, while the yuan fell 2, 4%. Bonds stand out, with the 10-year yield falling to its lowest level in two months as investors seek refuge.
The losses accelerated last week after President Donald Trump threatened to pay $ 200 billion in Chinese imports and another $ 200 billion if Beijing takes revenge. White House Commercial Counselor Peter Navarro on Monday sought to relieve investor concerns about US trade policy there is wonders if the Chinese economy can withstand a sustained attack from Trump.
Markets also began to weaken, with US stocks finally showing signs of weakness on Monday. Global stock repurchases reached $ 13 billion during the week to June 20, and some of the biggest money managers reduce risk while increasing their liquidity.
Many of their Chinese counterparts feel the same way.
"The market could continue to fall because it is still difficult to assess the impact of trade tensions," said Qian Qimin, a strategist from Shenwan Hongyuan Group Co. in Shanghai. "Investors will continue to reduce risk."
– With the help of Kana Nishizawa and Jeanny Yu
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