Hopes that China’s stock markets have finally shed their multi-year losing streak may have been dashed again. Since February 6, just before China’s New Year holiday the Shanghai Composite Index has slumped 5.6 percent. This followed an encouraging 20% rise in the couple months since the market reached a dismal four-year-low last December.
What’s drives China’s stock market? Individual retail investors make up 80% of the driving force. Additionally, the role of policy pronouncement or downright speculation has a significant impact on the Chinese markets. However, as we said in class, the Chinese market is a bit like gambling. The retail investors are new to the market and do not look at fundamentals like institutional investors do.
Qinwei Wang, China economist at Capital Economics, believes, “the trigger for the declines appears to have been a move by the government to tighten implementation of property controls, along with hints that monetary policy is shifting towards tightening, amid concerns about rapid credit growth.”
Even with the fears of real estate clampdown (the property sector makes up one-quarter of all investment in China), some are optimistic that long-term trends will be good news for China. With an increase in China’s middle class, more personal assets may be placed into investments rather than savings accounts.
What do you think will happen to China’s stock market in the future?