Can China save its sharemarket? Why stimulus measures may not be enough

A team effort to save China’s sharemarket is underway by officials, regulators and state-backed funds. Should investors be optimistic or cautious?

China’s measures to help make its stock markets more investable and spur economic growth in the wake of Evergrande’s property failure likely won’t fix its underlying issues.

Saxo Bank’s Chief China Strategist Redmond Wong told Markets with Madison from Hong Kong that China’s crackdown on short selling and loosening of bank capital requirements, among other stimulus moves, was not the right approach.

“This is not really the medicine at the moment that China needs most.

“Banning the short seller is just killing the messenger.”

Wong said more market and economic reform was required to solve more pressing issues, such as lifting productivity and confidence among entrepreneurs.

Also on that list was allowing house prices to decline.

“You need to allow those units to be sold at a lower price,” he said of housing projects unfinished by defunct developer Evergrande.

Saxo Bank's Chief China Strategist Redmond Wong believes stimulus efforts will not solve its underlying economic issues.

Stimulus efforts of the past six months include Chinese officials promising to increase fiscal spending, state-backed investment funds buying more Chinese listed equities, and China’s central bank, The People’s Bank of China, reportedly freeing up ¥$1 trillion ($228b) of bank capital.

That’s on top of the Shenzhen and Shanghai stock exchanges announcing in July measures to make their listed companies more attractive to shareholders.

Since then, 200 listed companies have announced share buybacks and had key stakeholders increase holdings, according to research by Nikkei Asia.

However, China’s sharemarkets have barely improved.

The CSI 300 Index, which bundles the largest companies on the Shenzhen and Shanghai exchanges by market capitalisation, was down more than 12 per cent in the past six months.

Shenzhen’s SZSE Component Index was down around 18 per cent, Shanghai’s SSE Composite Index was down almost 10 per cent and Hong Kong’s Hang Seng Index was down by more than 16 per cent.

Wong expected further market interventions would not exceed the measures taken in 2015, where the government directly purchased stocks and disallowed major investors from trading stocks for a six-month period.

Watch today’s episode of Markets with Madison above to hear how Wong would approach China’s situation as an investor.

Get investment insights from executives and experts on Markets with Madison every Monday and Friday here on the NZ Herald, on YouTube and wherever you get your podcasts.

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Disclaimer: The information provided in this programme is of a general nature, and is not intended to be personalised financial advice. We encourage you to seek appropriate advice from a qualified professional to suit your individual circumstances.

Madison Reidy is the host of the NZ Herald’s investment show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.