Some News Last Week in the Financial Market: 5/02/2024 – 11/02/2024
Some News Last Week in the Financial Market: 5/02/2024 – 11/02/2024
Writer: Klinsmann Lee
1. China aims to stop stock market drop with state-backed ETF buys, and short-selling curbs. [1]
Background:
China and Hong Kong’s stock market indexes have performed poorly relative to other stock market benchmarks (Japan’s Nikkei Index and U.S. Dow Jones) over the past few years. The downward spiral continues in 2024.
China has initiated its “national team” to expand the scope of mainland listed exchange-traded funds to support the stock market.
At the same time, the China Securities Regulatory Commission (CSRC) has announced new measures to stop short selling and support investors to buy stock on margin.
As China’s stock market continues on a downward spiral, it is still to be determined whether the measures are sufficient to stop the downward spiral in stock price.
Analysis:
The initiatives taken by CSRC may help break the downward spiral we are witnessing in both China's and Hong Kong’s stock markets. However, this is likely to be short-term only.
The drivers of the stock market in the long run are mainly driven by market expectations of the local economy, participants of key market players and other factors.
-The contributing factors behind China’s weakening economy include the property slowdown, weak consumer and business demand and declining birth rate in China will continue to affect the economy.
2. China’s economy faces a deflation problem. [2]
Background:
China’s consumer price index declined fourth straight month since October. The latest decline exceeded the market forecast.
The downward pressure in consumer prices reflects the weak household demand and private sector confidence.
It is important to note that the year-on-year decline was also affected by the timing of the New Year Festival (with the Lunar New Year occurring in January last year but February this year).
According to ING's Chief Economist, deflation should moderate in the next months with both moderating pork prices and festival spending.
Analysis:
Deflation is always an issue as declining prices always induce people to spend less in anticipation of further future declines. This will create a downward spiral in prices as businesses cut prices even more hoping to stimulate sales.
A moderate level of inflation is important to support the economy.
With China facing a property slowdown, weaker expected recovery in consumption from the coronavirus pandemic and low business confidence, it is important to continue to implement measures to support the overall economy and importantly, boost confidence.
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