According to Jeremy Mark of the Atlantic Council, the recent crash in China’s stock market could mark a turning point for foreign investors, potentially leading to a permanent departure. The market is expected to become more volatile as remaining investors shift their focus towards seeking quick profits rather than stable growth.
The decline in China’s stock market could have long-term repercussions, with foreign investors unlikely to return. Chinese firms collectively suffered a staggering $7 trillion loss since early 2021 across domestic and US indexes. This downturn may serve as the final straw for offshore traders, who are already hastening to exit due to deteriorating prospects for the country’s economy.
With little incentive to re-enter the market, investing in China may increasingly attract foreign bargain hunters and hedge funds, with some already actively trading in the market. This shift could potentially contribute to the volatile fluctuations that characterize China’s markets on a regular basis.
In response to the financial strain, Beijing has implemented various measures aimed at stabilizing the market, including state-backed purchases and restrictions on short-selling. While these efforts have led to a recent rally in Chinese indexes, a more substantial recovery hinges on Beijing’s ability to address broader crises.
The property market remains a significant concern, given its substantial contribution to China’s GDP. The sector’s reliance on high leverage has led to a wave of defaults, forcing real estate giants to liquidate assets. Beijing’s slow response to these challenges, coupled with the government’s crackdown on the tech sector in 2020, has further disillusioned foreign investors.
The exodus from the stock market has primarily been led by passive funds and investors focused on long-term growth, resulting in minimal foreign inflows last year. This trend has had a direct impact on China’s startup ecosystem, with the IPO market drying up as new companies struggle to secure funding.
Looking ahead, there are concerns about the government’s intentions towards stock investors, particularly given recent pronouncements suggesting less tolerance for business as usual. Despite potential economic and property market stabilization in 2024, uncertainties remain regarding China’s regulatory environment and its impact on investors.
