This appointment came after the authority announced during the past two weeks new supportive policies to achieve stability and revitalize the stricken Chinese stock market, which has become a victim of fluctuations in the real estate sector and investors’ pessimism about the growth expectations of the second largest economy in the world. These policies were represented by pumping liquidity into the market by reducing the percentage of… Mandatory reserve requirements for banks, as well as curbing short-selling of stocks, but the question that investors and experts are discussing is whether Wu Qing will succeed in taming the markets and enhancing confidence in them?
Wu Qing, a former banker who served as deputy mayor of Shanghai, China's main financial center, and served for two years as president of the Shanghai Stock Exchange, is called the “butcher of brokers” because of his record of suppressing traders, according to analysts.
Chinese stocks fell at the beginning of the week to their lowest levels since 2019, and the Shanghai and Shenzhen stock exchanges suffered from heavy selling of real estate stocks, which are witnessing a state of extreme uncertainty with the decline in the real estate market. Major Chinese stocks fell by 11.4 percent last year, while the Hong Kong index fell. By about 14 percent.
The turmoil in the Chinese markets comes in light of the enormous challenges that the country’s economy poses due to the Corona pandemic and its subsequent repercussions, in addition to the real estate sector crisis, weak consumer confidence, and the accumulation of debt with local governments, which led to a slowdown in the pace of growth, as the gross domestic product for 2023 recorded, (Growth by 5.2 percent) is the lowest rate since 1990, excluding the period of the Covid outbreak.
Rebuild trust with investors
Mazen Salhab, chief market strategist at BDSwiss MENA, said in his interview with “Eqtisad Sky News Arabia” website: “The rise in Chinese stock indices, if it happens, will not really be a criterion for the return of confidence in stocks or the success of decision makers in China in stopping the bleeding of the indices.” It lost billions of dollars and is still declining in an entire year. The Shanghai 50 index is down -15 percent in a year, China’s index of the 50 major companies is also down -16 percent for the same period, while the American and European stock indices appear to be in a completely different range, with a strong rise in 2023.”
The ability of the Chinese government to restore the rise in stocks requires, above all, rebuilding confidence with market players as well as international investors, and this requires reformulating financial laws, purchasing stocks from foreigners, and the ability to access Chinese stocks on an American-style basis, and not the least of which is confidence that the grip of the Chinese Communist Party You will no longer have to wait like you did several years ago with Jack Ma, founder of the giant Alibaba company, according to Salhab.
Financial markets need real reform
The chief market strategist at BDSwiss MENA, Mazen Salhab, confirms that “the appointment of the strongman Wu Qing as the new head of the Chinese Commission for Securities Legislation may contribute to this area, but that will not be sufficient in the long term unless it is actually accompanied by real change and reform of the markets.” Chinese Finance: It is true that it decided to stop speculative sales, but that will not be enough in the long term if the Chinese government intervenes again or the People’s Bank of China decides to intervene in the exchange rate, as happened years ago.”
Crossroads
It is clear that China is standing at a very important crossroads, even if no one has noticed it currently. This crossroads is based on a very big question: Does China want to build capitalism in the American style, or does it really want to return to rules imposed by the Chinese government, including… Pros or cons? Stocks will rise when Mr. Wu Qing is able to convince the markets of real rather than temporary change, according to Salhab.
Markets expert Salhab believes that “what China currently needs is more government transparency based on advanced trading laws that will push millions of foreign investors to enter again and create a kind of internal-external competition between the investors themselves and between local and foreign companies, and raise the level of foreign direct investments (FDA), as the FDA… Chinese market indicators were originally based on the idea of Chinese openness to the world, an openness that America supported for political, economic and social reasons. Accordingly, China cannot go back if it really wants to achieve growth in the financial sector and redistribute the wealth that Chinese companies and generations have built in the past three decades. “.
Salhab concludes by saying: “In general, there is excellent value in Chinese stocks, whether in terms of growth expectations or in terms of economic standards and return on stocks
, which seems more reasonable than America, whose stocks have reached record levels.”
Constant bleeding
For his part, a senior financial markets analyst at Equity Group, Ahmed Azzam, said: “Chinese stock markets are suffering from continuous bleeding, with some indicators reaching their lowest levels in five years at the end of last month. The brink of the abyss has prompted institutional and individual investors to reduce their losses in light of the faltering economy.” “The lack of strong government stimulus measures are greatly affecting confidence, the trade dispute with the United States, and the collapse of real estate developer Evergrande. Foreign investors sold 18.2 billion yuan ($2.5 billion) worth of Chinese stocks last month, recording outflows for the sixth month in a row.” .
In an attempt to limit deflation, Chinese leaders are trying to inject liquidity into the markets in the hope of halting these declines, and are implementing several stimulus measures to restrict short selling and encourage investors to pump more money into markets worth $8 trillion.
Heavy legacy
Wu Qing's legacy – as Chairman of the Chinese Securities Regulatory Commission – may be somewhat heavy, because he does not only deal with Chinese markets, but also deals with an economy that puts negative pressure on investment, as China, with its manufacturing power, suffers from a contraction in manufacturing activity in the country for the fourth month in a row. . Yesterday, Thursday, the consumer price index (inflation) reading fell by 0.8 percent, recording a decline for the fourth month in a row, which is the longest series of decline since October 2009. It is the largest decline in more than fourteen years, according to Azzam.
Markets analyst Azzam added: “What gives the news of Cheng’s appointment some optimism is that he is a person with extensive experience in the securities industry across regulatory bodies and stock exchanges and a veteran expert in the banking industries, as he previously led the Shanghai Stock Exchange. He is also a person who is strict about enforcing the rules against violations, and he has The new president's approach includes a market rescue plan that combines restrictions to limit regulatory violations, the establishment of a stabilization fund to rescue the faltering stock market, an attempt to stop the intensive selling of real estate stocks, and strict measures against insider trading and market manipulation to protect small investors.
Simple optimism
But what is worrying is that the positive news is just simple optimism, because tightening administrative controls instead of addressing the basic challenges may have a direct impact on the markets, but it may not last for a short period of time, as this may lead to changing the names may not mean much to the markets without movements that give… A wave of optimism for investors, thus flooding the markets with investment liquidity. This may lead us to consider that the lack of clarity on policy direction and bias towards control and directional policy will continue to affect investor confidence and dampen expectations, according to Azzam.
A senior financial markets analyst at the Equity Group believes that China needs to double economic reforms to support the economic situation within the framework of a broad reform, that is, amending policies, not just names, and stimulating a sustainable recovery to repair confidence, and not spending money as a quick solution with a quick impact, so it may be Qing will fail if his moves are not accompanied by clearly defined fiscal goals and economic-improving moves such as lowering interest rates and more systematic fiscal stimulus to support companies and individuals.
#Appointing #AlJazzar.. #succeed #reviving #Chinese #markets
