How China plans to keep its stock value and economy steady
In the past few weeks, we witnessed an unexpected rise in the Chinese stock market. The cost keeps rising, and the economy is recovering, but many are worried that this is just the beginning of the same failure in 2014; stocks started to grow, and suddenly it all went to nothing.
The difference between now and then
Although the pace of gains indeed looks the same as the market’s fall in 2014, the CSI 300 Index added 14% in only five days, which is way more than it was at the end of 2014. The momentum that stocks have gained is also a lot stronger and seems more durable than it was back then. This resulted in boosting the Chinese Yuan, and it is reported that people are googling “how to open a stock account” more and more. The Chinese media had the most impact on this part, prompting people to consider stock investing as an inevitable part of recovering the economy. Shares of brokerages rose as daily turnover exceeded $213 billion for the first time in five years. Retail investors started participating more actively, and on Monday, we saw a more-than-5% gain in stocks.
The critical difference includes a lower starting point for equity valuations. We are witnessing more traders taking on debt to buy shares, and leverage in the stock market is around 50% of what it was at its peak five years ago. This time, the central bank took a cautious approach to liquidity, withdrawing funds from the financial system for a week already.
Interest in stock accounts
China seems to be vary of talking up stocks, where investment choice is very limited due to capital controls. In 2014, state media’s encouraging words helped revive interest in what had been a dull equity market. The result was a debt-fueled bubble that burst, deleting $5 trillion of value. Just like then, regulators have recently revealed measures to liven up trading. This includes a new, streamlined approach to initial public offerings.
The Battle between Britain and China
The U.K. confirmed its disagreement with Beijing (and Moscow) on Monday. China’s ambassador in London warned there would be consequences if Britain treats his country as an enemy, in its dealings over Hong Kong and Huawei Technologies Co. Britain is preparing to phase Huawei out of plans for the next telecommunication generation, which created even stronger tension between them. It seems like Britain is trying to speed up the removal of the existing Huawei kit, but we do not know yet when it will exactly happen.
He accused the U.K. of following Trump’s accusations over Huawei being a spy technology and condemned Britain getting their fingers into the Hong Kong protests. Last week, Johnson offered a faster way to get British citizenship to almost 3 million residents of Hong Kong, Britain’s former colony. China refused to let Hong Kong citizens take Boris Johnson’s offer of a new life in the U.K., sparking up the tension even more. This just worsened relations with China, which last week enforced a security law on the former British colony. Johnson said the legislation is a “clear and serious breach” of the 1984 treaty between London and Beijing. The British government has stood by the offer of citizenship despite the Chinese government’s threat.