Chinese stocks suffered their biggest one-week drop since September 2020 out of concerns about tightening liquidity in the Chinese financial system. Foreign media reports suggest that the decline in Chinese stocks was notable against the backdrop of a generally bullish global stock market.
Bloomberg reported on Dec. 11 that China’s CSI 300 index fell 1 percent on Friday, extending its cumulative decline for the week to 3.5 percent, the worst performance among global benchmark indices.
In China’s A-shares, a usual gauge of investor sentiment, shares of brokerages have led the decline over the past five trading days, with the index of financials down 5.4 percent for the week, the report said.
Market sentiment has become more pessimistic this week out of concerns about the ability of China’s financial system to provide sufficient liquidity, which has put pressure on overvalued stocks. The P/E ratio of the CSI 300 is currently near its highest level in five years.
In addition, at least eight companies this week announced plans for major shareholders or internal executives to reduce their holdings in the coming months, suggesting that China’s stock market may be peaking.
The fund manager at Hengsheng Asset Management Co. said, “Without liquidity support, the market is unlikely to continue to move higher, so investors are choosing to lock in profits before the end of the year.”
The fund manager added that “credit events such as Suning and Yongcheng Coal have also affected risk appetite.”
Recently, the Communist Party’s central bank has signaled a tightening of liquidity in the coming months, and market rates this month reflected the risk of deleveraging, with the benchmark 7-day repo rate spiking 23 basis points on Friday (Dec. 11) to its highest level since last October.
The decline in Chinese stocks was notable against a generally bullish backdrop for global equities, the report said. The Morgan Stanley Capital International Global Index, which is near record highs, was virtually unchanged during the five-day period. By contrast, the CSI 300 index fell every day this week. The exchange’s average daily trading volume for the week was below CNY730 billion ($112 billion), the lowest level since October.
The manager of the Investment Management Co. fund said, “There has been some disagreement recently about monetary policy for next year. I’ve also heard from some that the consumer rally has not been as strong as expected so far and, most importantly, there may be valuation issues with stocks favored by institutional investors.”
Recent Comments