This is not a paywall.

Register for free to continue reading.

The news sucks. But your reading experience doesn't have to. Help us improve that for you by registering for free.

Please create a password or click to receive a login link.

Please enter your password or get a login link if you’ve forgotten

Open Sesame! Thanks for registering.

First Thing, Daily Maverick's flagship newsletter

Join the 230 000 South Africans who read First Thing newsletter.

We'd like our readers to start paying for Daily Maverick

More specifically, we'd like those who can afford to pay to start paying. What it comes down to is whether or not you value Daily Maverick. Think of us in terms of your daily cappuccino from your favourite coffee shop. It costs around R35. That’s R1,050 per month on frothy milk. Don’t get us wrong, we’re almost exclusively fuelled by coffee. BUT maybe R200 of that R1,050 could go to the journalism that’s fighting for the country?

We don’t dictate how much we’d like our readers to contribute. After all, how much you value our work is subjective (and frankly, every amount helps). At R200, you get it back in Uber Eats and ride vouchers every month, but that’s just a suggestion. A little less than a week’s worth of cappuccinos.

We can't survive on hope and our own determination. Our country is going to be considerably worse off if we don’t have a strong, sustainable news media. If you’re rejigging your budgets, and it comes to choosing between frothy milk and Daily Maverick, we hope you might reconsider that cappuccino.

We need your help. And we’re not ashamed to ask for it.

Our mission is to Defend Truth. Join Maverick Insider.

Support Daily Maverick→
Payment options

China’s $1.3 Trillion Stock Rout Tests Limit of Inter...

Business Maverick

Business Maverick

China’s $1.3 Trillion Stock Rout Tests Limit of Intervention

An aerial view of Pudong's Lujiazui Financial District in Shanghai, China, on Monday, 02 April 2018.
By Bloomberg
10 Mar 2021 0

A world-beating rally in Chinese stocks has turned into the biggest rout globally, shocking investors with the severity of its reversal and evading state efforts to slow the pace of losses.

In just 14 trading days, the nation’s benchmark CSI 300 Index has plummeted 14% from a 13-year high. That compares with a 2.2% drop by the MSCI All-Country World Index. The plunge has wiped out more than $1.3 trillion of value and hammered the holdings of retail investors who piled in at the peak, betting that the new lunar year of the Ox, or bull, would be auspicious. State intervention on Tuesday briefly arrested the tumble, before losses resumed.The CSI 300 rose 1.2% on Wednesday.

The question on traders’ minds now is how far the slump will go, given the CSI 300 is only a couple of bad days away from entering its first bear market in two years, and whether authorities will do more to calm sentiment. The hand of the state has become less obvious since 2018, when the government reportedly liquidated a handful of mutual funds it had formed three years earlier to purchase stocks during a crash.

Declines of more than 2% are becoming a daily event for Chinese stocks

But the government has long acted to ensure China’s financial markets are stable, especially around key events. The ongoing National People’s Congress, a closely watched political pageant used to unveil major policy priorities, is one such occasion. To see such turmoil in markets while the NPC is in session is highly unusual. The last time the CSI 300 lost more than 1% during the annual event was in 2014, and the current pace of losses would be the biggest since 2008.

State-backed funds, known as China’s “national team,” stepped in on Tuesday in order to ensure stability during the NPC, according to people familiar with the matter. A Hong Kong-based trader, who declined to be identified discussing client business, said entities linked to mainland funds were actively buying shares through stock links with Hong Kong Tuesday morning.

Chinese stocks fail to maintain gains despite state intervention

The efforts were initially successful: the CSI 300 erased a 3.2% drop to gain 0.3% in just over an hour in morning trade. Yet the gauge renewed its decline in the afternoon to close down 2.2% at its lowest level since December, a move that stood out against an upbeat day in global shares. The yuan swung between gains and losses amid the ructions in the stock market before rising 0.2% against the greenback as of 6 p.m. There was no significant impact on China’s local credit market, traders said.

The China Securities Regulatory Commission didn’t immediately reply to a fax seeking comment on whether state funds were behind Tuesday’s moves. Large insurers in Beijing and Shanghai bought stocks on Tuesday as the market tumbled, according to a Shanghai Securities News report.

To be sure, authorities had in some ways encouraged the recent correction. Officials repeatedly warned of asset bubbles and said that curbing risks in the financial system was this year’s key policy goal. Their comments came as signs of speculative activity increased: Liquor maker Kweichow Moutai Co., for instance, had surged 30% in just over a month to be worth more than $500 billion, making it one of the world’s most valuable stocks.

Yet, in a country where the government is paranoid about control, the stock market is a tough beast to harness. Rallies tend to morph into manias, and declines have a habit of spiraling out of control. That suggests that more measures will be taken to prevent the rout turning into a panic in a year where the Communist Party will celebrate its 100th anniversary.


Comments - share your knowledge and experience

Please note you must be a Maverick Insider to comment. Sign up here or sign in if you are already an Insider.

Everybody has an opinion but not everyone has the knowledge and the experience to contribute meaningfully to a discussion. That’s what we want from our members. Help us learn with your expertise and insights on articles that we publish. We encourage different, respectful viewpoints to further our understanding of the world. View our comments policy here.

No Comments, yet

Please peer review 3 community comments before your comment can be posted