Wall Street, take note: China’s new blueprint to rescue stocks

In this post:

  • China plans to launch a stock market stabilization fund to uplift investor confidence.
  • The proposal suggests investments in domestic equities via existing financial institutions.
  • Partner institutions are expected to match the government’s financial contribution to the fund.

Wall Street better start paying close attention, because China’s drawing up new blueprints to save its plummeting stock market. As the numbers roll in, it’s evident that China’s mammoth economy is teetering. And for those who aren’t savvy with financial jargon: that’s not a good sign.

A Bold Plan in the Making

It’s no secret. China’s authorities are weaving together a masterplan: a stock market stabilization fund. And why, you ask? To throw a lifeline to the sinking morale of their home-grown investors.

The playbook’s strategy is clear – the government wants to invest in domestic equities, but with a twist. They plan to use the existing financial machinery and funds that are professionally managed.

But here’s the catch – it’s not just the government’s money that will be poured into this venture. The government’s partners, those big financial institutions, will also match their contributions.

Beijing has dispatched this ambitious proposal to the State Council, China’s grand administrative house. But before you jump to conclusions, it’s this council that will put the final seal on how this fund will come to life.

A government advisor, privy to the inner workings, stated that for the plan to have the punch it needs, it should raise a whopping Rmb1tn ($137bn). Why so much, you wonder? “Influence,” he says. The goal is to sway the market in such a magnitude that it reinstills lost confidence.

From Past Talks to Current Action

This isn’t the first time China’s mulling over a stabilization strategy. Such whispers began back in 2015. Yet, it’s 2023 and the world’s seen the proposal push through with newfound vigor.

China’s fight to reignite belief in its capital markets is evident, especially given the backdrop of a housing market crisis and an ebbing tide in foreign trade.

Recent official data only hammers home the urgency. China, once an unstoppable force, is now skirting dangerously close to the abyss of deflation.

Just last month, metrics showcased a chilling trend: a stagnant consumer price index and a producer price index down by 2.5%. Both these metrics spell trouble, and even the most optimistic of predictions from Reuters analysts couldn’t put a positive spin on it.

Yet, not all seems bleak. A glimmer of optimism shines through as September’s trade data unfurls. Despite expectations, China’s exports took a less severe hit, falling by only 6.2% year on year. On the flip side, imports mimicked this trend, also dipping by 6.2%, outperforming the prior month’s numbers.

Amidst these economic tremors, Beijing isn’t sitting idle. They’ve rolled out some hard-hitting moves. Take this week, for instance. For the first time since the global financial crisis, China greenlit a purchase program squarely targeting top banks’ stocks.

Plus, the gatekeepers put a pin in brokers opening offshore accounts for their local players. The Central Huijin, a mammoth sovereign wealth fund, gave its word to continue purchasing bank shares for the next half-year.

But let’s not sugarcoat reality. Despite these maneuvers, China’s frontline CSI 300 index is feeling the burn, tumbling down by about 1% this week alone.

This stabilization fund isn’t just about hoisting up numbers. It’s a larger vision. It aims to rekindle that fiery entrepreneurial spirit, spurring on fresh listings, and in doing so, create a domino effect boosting domestic faith in the economy.

“To revive our markets, we need a prosperous stock market that pads the wallets of households, urging them to spend more,” the advisor opined.

In the face of criticism, Chinese policymakers stand resilient, confident of meeting their GDP target, albeit the lowest in decades. But the undercurrent of unease persists.

As Zhiwei Zhang, a top economist, points out, “Without solid fiscal support, the revival of domestic demand remains a mirage.” One thing’s certain: China’s next moves will be closely watched, not just by Wall Street, but the world.

Disclaimer: The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decision.

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