This post is about the Chinese investment landscape covering the stock and bond markets and covers the challenges of the current Chinese stock market.
Recent Chinese Stock Market Turmoil
China A-Shares have rallied since Q4 2014 to their peak in mid-June 2015. The one-year performance for the S&P Total China BMI rose over 110% (from June 12, 2014, to its peak on June 12, 2015). China A-Shares then suddenly dropped more than 30% after the rally, an amount equivalent to over USD 3 trillion that has been wiped off the stock market in less than one month. This massive sell-off has triggered the Chinese government to take intensive measures in order to halt the stock market plunge. The interventions seem to have successfully propped up and stabilized the Chinese stock market.
Government Interventions Post Threats to Chinese Stock Market
Despite the successful measures taken to curb the market plunge, the Chinese government has been accused of taking overly aggressive measures regarding its interventions in the market. A truly open stock market is commonly perceived as having minimal intervention. The recent intensive and unconventional measures taken by the Chinese government not only shake investor confidence toward China’s stock market, but they also slow down the liberalization of China’s capital market.
Some market players also expect that the Chinese government’s interventions could hinder the inclusion of A-Shares in the global emerging market indices. Emerging market indices are widely tracked by global asset managers. The inclusion of A-Shares could attract an estimated USD 400 billion inflow into the Chinese onshore stock market, but now the inclusion date appears to be even further away.
Many global investors appear to be taking a more conservative approach toward investments in China’s onshore stock market due to the recent market volatility and government interventions. However, as the second-largest economy in the world, China’s importance can hardly be neglected.