Shanghai stocks slide into bear market, piling on sluggishness in China

The latest market downturn occurred despite the Chinese central bank's weekend decision to encourage more bank loans by releasing funds into the financial system. Investors are now saying that the slump in the Chinese market could persist unless Beijing intervenes with more favorable measures.

"The trade dispute between the United States and China has proven to be more protracted and fierce than expected," said Victoria Mio, China Investment Manager at Robeco, an asset management company. Dutch based in Hong Kong.

"The weakening of the economy has also exceeded market expectations, and the Chinese central bank must probably do more to change these expectations," she said. May's data showed a slowdown in areas ranging from investment to retail sales in the world's No. 2 economy.

The other main market of China, based in Shenzhen, has been in bearish territory since February. Its members include companies more directly affected by trade tensions, including telecommunications equipment manufacturer ZTE Corp.

The Shanghai Stock Exchange is dominated by China's largest state-owned enterprises, such as banks, energy companies and airlines. Among the biggest losers this year are steelmakers such as Maanshan Iron & Steel, down 10.7%, and brokers such as Huatai Securities, down 16.1%.

Investor favorites, such as Alibaba and Tencent, China's largest technology companies, are listed outside mainland China, including Hong Kong and New York.

The market downturn of $ 4.9 trillion Shanghai accelerated a week ago, when the index plunged 3.8%, its worst day since February 9, when Chinese stocks were driven into a global sale. He is on track to record his first set of three-quarter declines since 2011.

A 14% drop since the beginning of the year makes the Shanghai Composite one of the most performing stock indexes in the world. In comparison, the S & P 500 is up slightly for the year, while the MSCI All – Country Asia Pacific and Stoxx Europe 600 indices are down about 3%.

Chinese markets have been hit hard by escalating trade tensions in US markets over the last week as investors are increasingly concerned that mutual threats of tariffs on hundreds of billions of dollars be more than just a negotiation tactic.

The lousy sentiment of the Chinese market has persisted even after the leading provider of clues

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included more than 200 domestically traded shares in its indices for the first time since the beginning of this month. Chinese stock markets have become more open to foreign investors in recent years, especially as a result of the opening of a commercial link between Shanghai and Hong Kong in 2014.

Analysts believe that the recent fall of the yuan against the US dollar has dampened the interest of foreign investors for Chinese markets in recent weeks. The Chinese currency is down 0.6% against the greenback in 2018.

"Now that Chinese markets are much more open to foreign investors, the impact of a weaker yuan has become more pronounced," said Jacky Zhang, an analyst based in Shanghai at BOC International.

Even so, domestic retail investors still dominate trade in China. Although markets have long been known for their casino-like volatility, they have remained relatively quiet since the beginning of 2016. Many tend to monitor regulators' trading activities more, which in the past included calls to managers and brokers. restrict heavy selling.

The daily trading volume in Shanghai and Shenzhen dropped to about 300 billion yuan ($ 46 billion) this week, compared with 400 billion yuan a month ago and 1.3 trillion yuan just before the collapse Chinese markets in the summer of 2015.

Another stabilizing factor recently has been the presence on the market of the so-called national team, a collection of state-backed investment funds that stepped in to buy stocks in mid-2015. Together, these funds hold about 5.5% of the market, according to estimates from the Wind Info data provider.

Market participants say that even though the national team is very present, its high holdings limit its intervention opportunities.

"The national team has spent pretty much all its money, and unless there is a major crisis like that of three years ago, it will likely be out of the way for the moment, "said a former head of the Chinese regulator.

In addition, because Beijing believes that the recent massive market sales are largely the result of trade tensions with the United States, it is experiencing less public pressure at the national level. "What really worries the authorities is still the domestic turmoil," said the former securities manager.

-Mike Bird in Hong Kong contributed to this article.

Write to Shen Hong at [email protected]