Chinese stocks rebounded as policymakers consider a package of measures to stabilize the slumping market, giving investors hope that the battered asset class may see short-term relief.
The Hang Seng China Enterprises Index rose as much as 3.8% Tuesday as Bloomberg reported authorities are seeking to mobilize about 2 trillion yuan ($377.2 billion) as part of a stabilization fund to buy shares onshore through the Hong Kong exchange link. The CSI 300 benchmark for mainland shares reversed losses to trade 0.6% higher.
China equities have seen a seemingly endless decline this year as investors sold out amid a barrage of bad news including a rolling property crisis, fears of a deflationary spiral and rising geopolitical tensions. That prompted Premier Li Qiang to urge more “forceful measures” steps to stabilize the stock market.
At a meeting on Monday chaired by Premier Li, the State Council received a briefing on the operations of the capital markets as well as considerations for related work, according to an official statement, which didn’t provide more details on what Beijing is mulling.
Policymakers have also earmarked at least 300 billion yuan of local funds to invest in onshore shares through China Securities Finance Corp. or Central Huijin Investment Ltd., according to people familiar with the matter.
See also: Trump's tariffs hurt more than just China
Yet there’s a deeper, longer-term shift away from Chinese stocks that have been weighing on the market. Their standing in global portfolios is diminishing, a trend that is expected to continue as some of the world’s biggest funds cut back holdings. A concomitant surge in equity markets in Japan and India is also luring investors away.
Singapore hedge fund Asia Genesis Asset Management Pte said it’s closing its macro fund after suffering an “unprecedented drawdown” following China’s stock market rout and Japan’s rally.
Geopolitical tensions are also ratcheting up. Taiwan voters on Jan 13 chose as their next President Lai Ching-te, who is known for his pro-independence leanings, while Donald Trump signalled he would take more steps to restrict trade with China if he wins this year’s US presidential vote.
