According to the Atlantic Council, China’s stock market may be scarred for the long term, since foreign investors likely won’t return. The recent China’s market crash has caused concern among foreign investors. Find out the implications and warnings from a top think tank before making any permanent decisions.
Chinese firms have suffered a $7 trillion hit since early 2021 on both domestic and US indexes. Due to souring economic outlooks on the country’s economy, offshore traders are already hastening to leave the country, Senior Fellow Jeremy Mark said. The fallout could be the final tipping point.
It is likely that investors will focus on fast profits rather than stable growth in China with few reasons to jump back in.
Investing in China is likely to be the domain of foreign bargain hunters and hedge funds, some of whom are already actively trading the market,” Mark wrote, adding: “Those fund managers who remain may contribute to the volatile swings in fortune that are commonplace in China.”
As a response to the financial stress, Beijing has issued a series of measures aimed at easing the sharp decline, as seen in china’s market crash including state-backed purchases and restricted access to offshore markets.
China’s indexes have rallied this week due to this flurry of efforts, but a stronger recovery will depend on Beijing’s handling of broader crises, Mark said.
The property market in China represents around a quarter of the country’s GDP, and its dependency on high leverage has resulted in a massive default wave, forcing real estate giants to liquidate their assets.
Marks noted that foreign investors had been disenchanted by Beijing’s slow response, as well as the government’s 2020 crackdown on the tech sector.
Net foreign inflows last year reached only $6.1 billion, the lowest level since 2017. Passive funds and investors focused on long-term growth largely drove the exodus.
As new companies look for cash, China’s IPO market has dried up.
It is worrying that the government’s intentions for stock investors are not clear, even if the economy and property market bottom out in 2024. “There have been a number of pronouncements directed at the financial markets over the past few months that suggest a reduced tolerance for business as usual,” Marks said.