China’s Stock Market May Have Reached Bottom, Say Wall Street Analysts
After its worst week in nearly a year, Wall Street analysts believe that China’s stock market may have finally hit a bottom. Last week, the CSI 300 index of large-cap stocks in Shanghai and Shenzhen dropped 4.6%, reaching a five-year low. This decline leads investors to express doubts about the Chinese government’s efforts to contain the market. However, Chinese stocks rebounded this week following reports that Chinese President Xi Jinping received a briefing from the China Securities Regulatory Commission.
Kelvin Wong, senior market analyst at Oanda in Singapore, believes that this news has helped boost investor confidence, leading them to expect that China’s leadership intends to take more direct action. This could include the possible launch of a stabilization fund to directly intervene in the market. The Chinese government announced the removal of Yi Huiman, chairman of the China Securities Regulatory Commission, and his replacement by Wu Qing, former chairman of the Shanghai Stock Exchange. As a result, the CSI 300 index rose another 1% on Wednesday, bringing its weekly gain to 5.2%.
A proprietary model maintained by Jeff deGraaf and his team suggests a potential capitulation sell-off for Chinese stocks. DeGraaf explained that the extremely weak performance of the stock market has triggered strong dissatisfaction among the Chinese public, attracting the attention of Chinese leaders, who will likely take action to curb the market decline. Analysts including Tom Lee, head of research at Fundstrat, and Mark Newton, head of technical strategy, said in a note to clients that Chinese stocks may have hit a bottom this week.
This news comes as the Chinese Lunar New Year holiday will begin on February 10. China’s stock market has faced consistent declines over the past three years due to issues in the country’s real estate sector, the broader economic downturn, and ongoing tensions between China and the United States. Many believe that a recovery in the Chinese market would have a positive impact on the U.S. economy, and may signal that the world‘s second-largest economy is emerging from the downturn.
(This article is translated from MarketWatch. MarketWatch is operated by Dow Jones, the parent company of The Wall Street Journal, but MarketWatch is independent from Dow Jones Newswires and The Wall Street Journal.)