Why did China’s stock market struggle in the last two years (2024)

FAQs

Why did China’s stock market struggle in the last two years? ›

What's driving the meltdown? In short, investors are worried about the lack of effective policies from Beijing to spark a sustainable economic recovery. China's economy grew 5.2% in 2023. That was its slowest pace of expansion since 1990, with the exception of the three pandemic years through 2022.

The Hang Seng Index capped the shortened trading week with a 3 per cent decline, triggered by worries about China's weak economic situation and a slew of disappointing earnings results.

In addition to the Federal Reserve's questionable policies and misguided banking practices, three primary reasons for the collapse of the stock market were international economic woes, poor income distribution, and the psychology of public confidence.

In other words, foreign investors, on balance, took money out of China. Longer-term economic challenges, including a failure to rebalance away from investment and exports towards domestic consumption, high debt levels and an ageing population, have also dented investors' confidence.

“In China, companies don't need capital [from stock markets]. They're getting their capital from cash flows; they're getting their capital from the private side. The stock market does not provide the same service in China,” he explained.

A stock market collapse typically occurs when the economy is overheated, inflation is rising, market speculation is rampant, and there is significant uncertainty about the path of an economy.

Overall debt levels in China are higher than in the United States relative to the size of their economies, mainly because of heavy borrowing by state-owned enterprises. Many Chinese are struggling to make mortgage payments on apartments that are falling in value.

Many causes are associated with the collapse, including rampant speculation by banks and consumers in the stock market and dubious investment opportunities, the over-availability of consumer credit and the general disregard of the American economy by the New Era Republicans, consisting of Presidents Harding, Coolidge ...

What Were the Causes of the 1929 Stock Market Crash? There were many causes of the 1929 stock market crash, some of which included overinflated shares, growing bank loans, agricultural overproduction, panic selling, stocks purchased on margin, higher interest rates, and a negative media industry.

The 1987 stock market crash, or Black Monday, is known for being the largest single-day percentage decline in U.S. stock market history. On Oct. 19, the Dow fell 22.6 percent, a shocking drop of 508 points. The crash was somewhat of an isolated incident and didn't have anywhere near the impact that the 1929 crash did.

Why is China a difficult market? ›

China makes it difficult for international businesses to gain a foothold in a few ways: Chinese law isn't particularly transparent, making it difficult for a foreign company to research compliance and employment procedures.

Some of the risks associated with investing in China include its communist structure, regulatory differences, and insider trading. Investment opportunities in China include U.S. corporations that have a presence in the country, mutual funds, and ETFs.

One-year forward multiples for the CSI300 and MSCI China indices stand at 11.6x and 9.6x, well below their historical averages. Earnings are on path to recovery for the CSI300 (Goldman Sachs' top-down estimate being 9% / 11%) and MSCI China Index (8% / 10%) for 2024 and 2025 respectively, in local currency terms.

The biggest reason China's stock markets have taken a nosedive? Basically since the country's prolonged zero-COVID policy ended, “the Chinese economy so far has been sluggish and very much disappointing,” said Zongyuan Zoe Liu, who researches China at the Council on Foreign Relations.

Their backgrounds vary widely, and they're leaving for all sorts of reasons. Some are very poor, others are very rich. Some leave for economic reasons, as opportunities dry up with the end of China's boom. Some flee for personal reasons, as even limited freedoms are eroded.

In all, about $6.5 trillion has been wiped out from the market value of Chinese and Hong Kong stocks since a peak reached in 2021.

One-year forward multiples for the CSI300 and MSCI China indices stand at 11.6x and 9.6x, well below their historical averages. Earnings are on path to recovery for the CSI300 (Goldman Sachs' top-down estimate being 9% / 11%) and MSCI China Index (8% / 10%) for 2024 and 2025 respectively, in local currency terms.

Overall, the data suggests that the worst is over for China. With smart money betting on Chinese stocks, investors should look to be bullish Chinese stocks over the next six-12 months.

The slowdown in the economy and rising geopolitical tensions has led some companies to reduce their exposure, and the rapid shift to electric vehicles in China also caught foreign car firms off guard, prompting some to withdraw or scale back their investments.

The sudden drop in stock prices may be influenced by economic conditions, catastrophic event(s), or speculative elements that sweep across the market.