Thursday 25 January 2024

Has China Stocks Bottomed?

 Measures have been announced that China has decided to reduce its reserve ratio rate to boost liquidity of its monetary system

Is it Over?

Optimism has come in with a slight boost in share prices of Chinese companies. However, I would caveat against being too optimistic if it is a turnaround

Poor Government and Civil Service Messaging

One would remember back in Oct 2022 after President Xi's cabinet reshuffle investors were spooked due to the installing of his yes men; the president and cabinet shortly came out to reassure investors that business regulations will be lessened in an attempt to stabilise the market.

1 year on, the Chinese government and Civil service went on another wave of technology company reform and of course the worsening of the real estate market. We are now back to the lows of October 2022.

The Chinese Civil Service has been incoherent in the messaging it wishes to send to investors. The posturing is max with a calming message followed by a policy which further strangles companies. This puts investors on see-saw and have stayed away from the market. 

What is there for Now?

I do not know where it goes from here, but what I am pretty certain is that money is going to keep flowing out of the Chinese Capital markets, the poor messaging by the civil service which goes all the way up to the highest senior ministers is sending markets in jitter. The current turmoil caused by China is due to negative policies introducted to hurt business and the civil service trying to quell investor fears but its words are not matched by actions where policies occassionally crop up to hammer sentiments down.

Until the Chinese Civil service improves, I think the chinese capital market will continue to flounder. China continues to report positive GDP but I also caveat on believing the actual figures reported. Former President Richard Nixon has a quote of "Trust, but verify". This is entirely true for the current chinese communist regime while we can trust, our own verifications still shows how anti business China is. 

President Nixon faced the threat of communist powers during the cold war era, investors now face a similar communist threat in investing in China. It is indeed an era of cold war for China stocks which I do not think can be easily resolved until the communist become coherent and investor friendly in their policies.

China can keep injecting liquidity but the poor execution of its civil service and policies will continue to drive foreign capital out. If capital flight continues, it may signal the end of China as an economic no 2. The stock market will be stuck in a rut and has been down for 6 years. However, Japan has shown how a loss of confidence led to 2 decades of trough, China is not even halfway there

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