An investor looks at an electronic board showing information about shares at a brokerage in Nanjing, Jiangsu province, China.
Reuters
BEIJING – Mainland China shares have plummeted in recent days, while officials have set a relatively low GDP target and signaled a change in policies aimed at keeping the economy afloat after the coronavirus pandemic.
The Shanghai compound has dropped more than 5% in the last five trading sessions, with losses accelerating this week to the lowest index since December, according to Wind Information. Other stock indexes on the continent, such as Star 50, which tracks big names in the technology stock chart, and the CSI 300 have fallen nearly 8% or more in the past five trading sessions.
The indices rose on Wednesday after US markets rebounded overnight from a recent liquidation.
After significant stock market gains in mainland China over the past six months, investors are focused on two things, said Tai Hui, chief Asian market strategist at JPMorgan Asset Management, on Wednesday.
One is the concern about the reversal of supportive fiscal and monetary policy based on comments from China’s annual parliamentary meeting; the other is liquidation in the US market, especially in high-tech technology stocks, he said.
Senior officials at the People’s Bank of China and the banking regulator warned this month of financial market risks. His comments accompany the biggest political event of the year in China, the parliamentary meeting “Two Sessions”.
China sets “very conservative” GDP target
As part of the meeting, Chinese Prime Minister Li Keqiang announced on Friday that the country would target GDP growth of more than 6% for the year, at the lower limit of many economists’ estimates. Li said that no new bonds will be issued to respond to the pandemic and that deficit and inflation targets will be lower than last year.
In a report on Monday, Citi analysts rated the GDP growth target as “very conservative” and said it would ease the pressure on policymakers to achieve rapid growth, allowing them to take more stringent measures to contain the risks of stocks and the real estate market.
As a result, they hope that the authorities will limit the growth of loans, restricting the potential amount of capital that could be invested in the purchase of shares. Citi analysts estimate that the CSI 300 could drop 10% from its levels on Friday, March 5.
The CSI 300 fell about 4% from Friday’s close until midday on Wednesday.
Economists in China have been watching US markets closely, where government stimulus and an increase in US Treasury yield over 10 years have raised some concerns about the risks of “imported inflation”. So far, domestic measures of such price increases remain silent. China recorded a 0.2% drop in the consumer price index in February compared to the previous year and a 1.7% increase in the producer price index.
Long-term investment themes
Instead, market strategists are pointing to long-term opportunities for Chinese stocks, due to the recent liquidation and the announcement of details for the country’s five-year development plan, which begins this year.
The development roadmap, known as the 14th five-year plan, aims to increase China’s technological skills, increase the role of consumption in encouraging economic growth and addressing issues such as the aging of the Chinese population.
Xuan Wei, chief strategist at China Asset Management, said in a statement that in the medium to long term, he is optimistic about investment opportunities in technology, consumer trends and medicine.