China Unleashes $139.64bn Liquidity to Boost Struggling Stock Market

Summary

  • China is leveraging its policy tools to bolster its slumping domestic stock market through reserve ratio cuts for banks. This aims to inject approximately 1 trillion yuan ($139.64 billion) of liquidity into its languishing mainland and Hong Kong share prices.
  • However, regaining investor confidence isn’t an easy task, especially with the looming geopolitical tensions expected in 2024, as discussed by executives of exchange operators and asset managers at the Asian Financial Forum in Hong Kong.
  • Hong Kong Exchange and Clearing’s CEO, Nicolas Aguzin, stated that geopolitical tensions and differing U.S.-China relations have plagued Hong Kong’s stock market, which is currently trading near 15-month lows.
  • A change in government policy could help reestablish confidence in China’s markets.
  • In comparison to China, investors have started to consider markets beyond China, with India appearing as a significant part of their future investment focus.

China’s Financial Market Struggles

China recently announced cuts in the reserve ratio for banks in a bid to unlock about 1 trillion yuan ($139.64 billion) to strengthen the flailing mainland and Hong Kong share prices. However, restoring investor confidence proves to be a tough feat, executives from both exchange operators and asset managers suggested at the Asian Financial Forum in Hong Kong.

Views from Industry Leaders

Rene Buehlmann, the global CEO of investments at Abrdn, admitted to the challenge of decoding Chinese market nuances. He highlighted that, despite the low valuations, they hold strong companies in their portfolios. However, international capital would only return when confidence is regained needing systemic policy changes rather than single measures from the Chinese government.

Market Performance Overview

China’s benchmark CSI 300 Index has fallen 47% from its peak in February 2021. At the same time, Hong Kong’s benchmark crashed by 26%, and the CSI 300 is 22% lower. The wider index even incurred a 15% loss within a year. Contrastingly, the index observed an upward trend of 24%, and the U.S. stood 27% higher.

Presidential Election Impact and External Investments

Nicolas Aguzin predicted that the upcoming U.S. presidential election would influence investor decisions in 2024. He added that certain private investors and hedge funds have recently begun to divert their attention to the Hong Kong market.

Meanwhile, Min-Lan Tan, head of the chief investment office APAC at UBS, suggested the attractiveness of Indian markets as it poised to play a significant role in the future of investments. The potential for India to rise to the next level seems plausible considering their public infrastructure, stable demographics, and higher investment rates,” she said.

The 2024 U.S. presidential elections could also wield potential impacts on China’s pressure, she added.

($1 equivalent to 7.1612 renminbi)

This situation in China impacts the forex market by potentially influencing the value of undertakings in currencies such as yuan and Hong Kong dollars. Changes in investor confidence and policy could also affect trading strategies for stocks listed on China’s and Hong Kong’s exchanges.

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