China Stocks’ 'Policy Put' is Breaking Down

Chinese officials appear relatively unconcerned about their country’s property market issues, as evidenced by their low prioritization of the sector in their recent policy goals. This lack of urgency is in stark contrast to market expectations and reactions.

Key Highlights

1. Policy Goals and Real Estate:

   • Of the 60 policy goals outlined at the recent third plenum leadership summit, the real estate sector was not mentioned until item 44.
   • The mention of the real estate sector was brief and lacked detailed plans to address the issues affecting the $17 trillion economy.

2. Market Reactions:

   • Investors have been repeatedly disappointed by short-lived rallies based on hopes of policy support for the real estate sector.
   • President Xi Jinping’s crackdown on leverage has significantly impacted home prices, causing a confidence crisis among homebuyers and dragging down overall economic growth.

3. Stock Market Performance:

   • The CSI 300 stock benchmark has been flat since January, while Hong Kong's Hang Seng Index is up only 2%, reversing earlier gains.
   • Cumulative net purchases of Chinese equities by offshore investors peaked at 96 billion yuan in May, with 80% of that amount flowing back out since then.

4. Market Sentiment:

   • The recent 3% fall in the CSI 300 index suggests a lack of confidence in Beijing’s ability to address the economic issues highlighted by the plenum.
   • Trading cycles are becoming shorter and more volatile, as investors quickly enter and exit the market to capitalize on brief rallies spurred by policy hints.

5. Economic Data:

   • China’s economy grew 4.7% year-on-year in the second quarter, according to official data released on July 15.
   • The equity benchmark has remained flat despite the economic growth figures.

Analysis

The market’s reaction to the Chinese government’s policy priorities indicates a growing skepticism about the effectiveness and timeliness of potential interventions in the real estate sector. The lack of detailed plans and the low prioritization of the sector contribute to this sentiment.

Investors are wary of the volatility and have become more inclined to make quick trades rather than long-term investments, which is contrary to the stability Beijing aims to achieve. The situation underscores the challenges faced by Chinese policymakers in regaining market confidence and ensuring sustainable economic growth.

Conclusion

The breakdown of the 'policy put' in China’s stock market reflects deeper concerns about the country’s economic trajectory and the effectiveness of its policy responses. Without concrete and impactful measures, the volatility and uncertainty are likely to persist, making it challenging for the market to achieve stable growth.