China’s $3 Trillion Selloff: Shanghai Composite Index Hits Four-Year Low as Rout Intensifies
The bloodletting in Chinese stocks is showing little sign of abating. On Monday, the nation’s benchmark stock index fell to four-year lows amid renewed efforts by policymakers to deepen capital market reforms.
All of China’s mainland indexes posted sharp declines on Monday, extending a massive selloff following Golden Week celebrations. The Shanghai Composite Index fell 1.5% to 2,568.10, its lowest since November 2014. As Bloomberg reports, a gauge of consumer-driven shares experienced the biggest drop after data showed a decline in passenger vehicle and online appliance sales for the month of September.
The Shanghai Shenzhen CSI 300 Index closed down 1.4% at 3,126.45. Hong Kong’s Hang Seng Index also fell 1.4% to 3,126.45.
Other regional stocks also declined heavily on Monday. Japan’s benchmark Nikkei 225 fell 1.9% to close at 22,271.30. Australia’s S&P/ASX 200 Index closed 1% lower at 5,837.10.
Chinese stocks are down a staggering 9% since Sept. 28, when markets paused for the Golden Week holiday. The declines began in earnest last Monday as investors returned from holiday to dismal economic data, an escalating trade-war with the United States and insufficient reforms by the People’s Bank of China. The selloff deepened later in the week as U.S. equity markets experienced their worst drop since February.
Regulators Push Reforms but Fundamental Issues Remain
China’s securities regulator has announced plans to broaden capital market reforms in an effort to shore up investor confidence. As reported by the South China Morning Post, the head of Beijing’s Securities Regulatory Commission will implement new measures to create a fairer and more transparent capital markets.
The pledge followed a high-level meeting between Liu Shiyu, chairman of the China Securities Regulatory Commission, and 15 hedge fund managers and retail investors. Attendees proposed several market-boosting measures, including enhancing the strategic status of equity markets, reforming state-run enterprises and implementing tax breaks for hedge funds.
Earlier this month, the People’s Bank of China announced it had cut the reserve ratio for domestic banks by 1 percentage point in an attempt to free up more funds for lending, which could stimulate economic growth.
Given the market’s response, investors aren’t convinced that these efforts can stem the massive decline in stocks. China’s economy faces a protracted slowdown that pre-dates the trade crisis with Washington, but one that is expected to worsen under President Trump’s tariff regime According to the International Monetary Fund (IMF), China’s rate of economic expansion is on track to reach 29-year lows.
A decline in global risk appetite will also weigh on Chinese stock markets, a trend that is expected to continue if investors feel that government’s response is insufficient in dealing with these risks. Meanwhile, the United States is pushing hard to prevent China from further devaluing its yuan currency. A sudden devaluation of the yuan in 2015 triggered a multi-trillion-dollar selloff of global equity markets.
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