Since the CCP virus Epidemic, the benchmark CSI 300 index has only recorded a modest 65% gain from bottom to peak, which is really tame compared to the bull markets of 2007, 2009 and 2015. The bull market in China is becoming shorter and shorter, and investing in Chinese stocks is frustrating, making buying and holding Chinese stocks a losing business at this point.
Bloomberg reported on March 18 that China’s stock market never seems to mature, as the market is still driven by liquidity and follows in the footsteps of the government’s “credit rush.
In the eyes of stock market investors, the Chinese Communist government is becoming more and more capricious. According to Bloomberg Economic Research estimates, China’s credit ramp-up began to subside as early as November 2020 and only began to accelerate in March of this year.
Beijing launched an extraordinary stimulus program in 2009 after the Lehman Brothers bankruptcy in 2008, and the 2015 stimulus, though smaller and focused on shantytown renovation, lasted for two years. This Time, however, the tidal wave of low-cost money has lasted less than a year.
Like many other aspects of the Chinese economy, Communist Party officials have a strong influence on the stock market. However, official influence over the stock market has brought two bubbles to China’s stock market this century: the 2007 and 2015 crashes, both of which burst.
Bloomberg reports that Chinese Communist Party officials released a slew of economic data this week that looks impressive at first glance, with its export growth figures particularly notable, but that’s where the market needs to be careful. There is always a lot of noise in Chinese economic data at this stage of the Yellow New Year holiday; combined with the impact of China’s shutdown of economic activity early last year due to the Communist Party’s virus outbreak, which had a negative impact on export trade, it is not surprising that there was a significant year-over-year improvement.
Data from Societe Generale SA’s cross-asset research team further suggests that China’s recovery in retail sales has not returned it to its pre-Communist virus trend, while fixed-asset investment, long seen as a driver of the economy, is also below trend.
As always, the actions of the CCP government may be even more important to the economy. In a sign that Beijing is squeezing some of the most prominent companies in the private sector, Tencent Holdings Ltd. has seen its market value evaporate by $62 billion in just a few days. Tencent is also one of the biggest Chinese companies to be hit by the new anti-monopoly marketing practices.
The good news for those who think it’s acceptable to invest in China is that Beijing wants to avoid a full-blown stock market crash, but the bad news is that its current priorities may mean that the Chinese stock market won’t do much exciting for some time.
Bloomberg reports that China has been trying to nurture a “slow bull” in the stock market for years to avoid a repeat of the 2015 boom-and-bust. But if the Chinese government’s macro policies were consistent and stable, investors might not be watching every top-level meeting with eyes wide open, but would be paying more attention to the fundamentals of those listed. But today, with macro policies so volatile, stock-level research is simply out of the question.
China naturally has good reason to tighten its liquidity valve, as it is already among the world’s largest debtors. As of last November, China’s non-financial debt-to-GDP ratio had soared to a level close to 280%, up from 254% a year ago.
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