On Thursday, Chinese equities resumed their dismal run, putting a major indicator on track for its lowest closing since November, as foreign capital continued to leave the country amid ongoing economic worries.
As much as 1.5% was lost by the MSCI China Index, continuing what is expected to be a third straight week of losses. A measure of significant Chinese companies listed in Hong Kong and the Hang Seng Index both decreased by more than 1%. In both domestic and international currency markets, the yuan lost as much as 0.2% of its value.
Another sign that Beijing’s efforts to rebuild market confidence are failing with investors is the selloff. In addition to a number of initiatives taken by officials in recent weeks, including a drop in transaction costs for stock trading and some limitations on stake sales by top shareholders, China’s central bank only on Wednesday pledged to utilize a variety of mechanisms to maintain liquidity that is sufficiently ample.
According to statistics provided by Morgan Stanley, hedge funds have increased their pessimistic wagers on Chinese and Hong Kong equities, with short interest rising this month essentially across all sectors. The drops on Thursday coincided with a larger risk-off sentiment in the equities markets throughout the world as the Federal Reserve indicated interest rates will remain higher for longer.
According to Wu Xianfeng, a fund manager at Shenzhen Longteng Assets Management Co., “there are still overhangs, such as the prospect of a persistently hawkish Fed and the possibility of a hard landing in the fallout from the property sector, which could keep sentiment low.” “If the state launches a new round of buying with a market stability fund, that’s one way we might be able to see a turnaround,”
Net foreign withdrawals from onshore Chinese stocks are continuing unabated as concerns about the economy and real estate market remain predominate. Following a record 90 billion yuan selloff in August, international funds have sold 24 billion yuan ($3.2 billion) this month via trading ties with Hong Kong.
At lunchtime, the benchmark for mainland shares, the CSI 300 Index, was down 0.6%. After falling 22% in 2022, the gauge has decreased by over 5% this year. On Wednesday, business activity in Shanghai and Shenzhen fell to its lowest level since October.
This shows that traders are not responding to the government’s commitment to “invigorate capital markets and boost investor confidence,” which was made nearly two months ago.
In the offshore market, Hong Kong-listed companies are increasing share repurchases in an effort to boost values, and this year, China’s largest companies plan to distribute record dividends totaling 1.5 trillion yuan to boost sentiment that has been damaged by a flight of foreign investors.
Even though the central bank on Thursday put the daily reference rate for the currency at the largest deviation from market expectations, the offshore yuan, which is less affected by Chinese government intervention, declined for the fourth straight day.
According to credit traders, the price of Chinese companies’ offshore junk dollar bonds, which are sold in a market dominated by real estate developers, barely changed. Despite the most recent relaxation of Guangzhou’s home purchase rules, bond investors are still apprehensive of the country’s housing difficulties as a dollar note from Longfor Holdings Ltd. fell for a third straight day.
A real estate equity gauge only increased by 0.5%.
According to Stanley Chan, head of FX trading at Chong Hing Bank, Thursday’s yuan fixing at the greatest bias ever demonstrated PBOC’s persistent attempts to limit the currency’s decline, particularly ahead of the Asian Games. “Economic fundamentals have not changed, and the market continues to anticipate a future reduction in the RRR.”