Chinese authorities intervene to try to shore up stock markets

The Chinese authorities have intervened to try to stop the sharp declines that have dragged down the main Chinese markets since the beginning of the year, with state funds buying shares and regulators announcing measures to avoid collapses like the one in 2015.

In addition, the country’s president himself, Xi Jinping, would meet today with the main regulators to discuss the state of the markets and the proposed measures to shore it up before the Lunar New Year holiday season, according to sources cited by Bloomberg.

The news strongly boosted the two main markets in mainland China, Shanghai and Shenzhen, which closed with gains of 3.23% and 6.22%, respectively, after having hit 2019 lows, while Hong Kong also rose strongly, 4.04%.

Since their latest peaks in 2021, Chinese markets have lost some $7 trillion in value amid a slowing economy, a worse-than-expected post-pandemic recovery, a lack of confidence among businesses and consumers, the threat of deflation, geopolitical tensions or the crisis in a real estate market that does not seem to bottom out.

According to Goldman Sachs estimates cited by the Hong Kong newspaper South China Morning Post, the central bank, state companies or the sovereign wealth fund bought about $9.8 billion in local stocks last month.

This Tuesday, the state fund Central Huijin Investment said it had increased its purchases of exchange-traded funds linked to stock indices to help maintain market stability.

State institutions have also acquired shares of the country’s main banks in recent weeks, Bloomberg notes.

And recently, the stock market regulatory commission announced various measures such as suspending restricted stock lending to try to prevent short selling.

He also announced guidelines to limit forced sales due to ‘margin call’ situations, which occur when the investor is close to running out of funds to cover his position and the ‘broker’ – for example, a bank – that has lent funds to undertake The investment requires a greater outlay to maintain it and thus avoid its automatic closure.

In recent months, global funds seem not very optimistic about the situation in the Chinese markets, withdrawing up to 201 billion yuan (28,274 million dollars, 26,292 million euros) from them in half a year, a record figure, according to South China Morning Post.

What regulators are now trying to prevent is that Chinese markets enter a crisis like that of 2015, when they fell by more than 40% between June and August alone, the equivalent of a loss of about $5 billion.

On that occasion, Bloomberg recalls, the share price took months to hit bottom and the peak it subsequently reached was significantly lower than that of 2015.