Amidst a brutal trade war between China and the United States and a slowdown of the second largest economy of the world, a 24.6 per cent drop in the last 12 months was noted by Shanghai’s stock benchmark which made it the worst market performer in the world for a second straight year.
The city’s key stock index closed the year at 2,493.90, while the benchmark on the smaller Shenzhen bourse fell 33.2 per cent during the period to 1,267.87. During the current year, there was a loss of US$2.4 trillion in the combined capitalisation of the two exchanges to reach 43.3 trillion yuan (US$6.3 trillion) and were overtaken by Tokyo as Asia’s largest equity market.
“The stock market is often the barometer of a nation’s economic health, and the weakness in China’s A-share market reflects the serious troubles in the Chinese economy,” said Li Wenhui, an analyst for Huatai United Securities.
The third quarter economic growth of China was the slowest since the country started compiling quarterly economic data since 1992 and was recorded at 6.5 per cent.
And since it takes times for the full impact of the trade war to get reflected in the account books of corporate houses and impact the household budgets in the second largest economy of the world, therefore analysts feel that the worst is yet to be come. According to a Nikkei survey of 32 economists, Chinese economic growth could get slow down to 6.2 per cent in 2019 which would be the slowest for the country in the last three decades.
November’s industrial profits fell for the first time in nearly three years according to the latest statistics from mainland China which underscores the bleak forecast. On the other hand growth in retail sale reached a 15 year low.
Currently there is a 90 day truce in the US-China trade war which is to be used by both the countries to reduce trade tensions. Hence the trade war is at a precarious situation. According to Ryan Chan, associate director at Hong Kong-based Eddid Securities and Futures, the trade ware has also cast a shadow over the global economy which in turn creates concerns among global investors.
“The economic situation is both worrisome in China and the US,” Chan said. “The US economy has already slowed, while China is struggling with massive corporate debt, a liquidity squeeze, and private-sector woes.”
The ChiNext Price Index that tracks start-ups and innovative companies saw a drop of 28.6 per cent this year which shows that the slump in the Chinese stock market had an across the board impact. While the China Enterprise Index was little changed at 9,992.22, the Hang Seng Index inched up 0.1 per cent to 25,504.20.
According to some strategists, there is only room for improvement in the market because it has deteriorated so much. Many are pinning their hopes on government bailout programs that can provide the much needed stimulus to rejuvenate the economy.
“We expect the government to loosen liquidity next year amid the current economic downturn,” said Zhang Xia, chief strategist for China Merchants Securities. “If the total financing accelerates by the middle of the year, the economy will stabilise and the fund outflows from A-share market will reverse.”
According to Bloomberg’s survey of analysts, with a median value in a range between 2,350 and 3,300, there can be a rise of 18 per cent rise next year in the Shanghai Composite Index to reach about 2,950.
(Adapted from SCMP.com)