Chinese stocks rise after government intervention
Shanghai’s stock market showed early signs of recovery on Wednesday after Beijing’s coordinated efforts to counter a steep downturn in the tech sector. The People’s Bank of China and financial authorities rolled out a $15 billion package of measures on Monday, which pushed the CSI 300 index up by as much as 2%. However, the gains stemmed primarily from “state-backed investors,” the South China Morning Post reported.
This week, individual investors avoided stock market risks, despite China’s efforts to boost confidence in its major equity market. Traders using borrowed funds reduced their investments to the lowest level in a year, and new stock account openings fell by over 30% in October, as per official data.
The retreat in retail enthusiasm contrasted with the government ramping up its efforts to prop up stocks, including liquidity injections through two monetary tools and reported suspensions of new share sales to keep a lid on supply. Stephen Innes, a managing partner at SPI Asset Management, stated that there is a difference between stopping the bleeding and restoring the patient to full health.
Innes also mentioned that government-backed purchases can stabilize the market, and easier buy-back financing can improve liquidity. However, he questioned the market’s sustainability without government support if corporate earnings don’t improve. The CSI index had declined for 12 straight weeks, and Chinese mainland stocks lost approximately $2.4 trillion in value since May, as investors doubted the profitability of Beijing’s AI sector.
Study: Less disclosure to foreign investors
A study published in The Accounting Review found that Chinese companies frequently provide less complete information to foreign investors than to domestic shareholders. The study said that English-language filings offered less information than their domestic Chinese counterparts, and that when researchers emailed Chinese companies posing as local versus foreign investors, the firms were half as likely to respond to the foreign inquiries.
According to the Wall Street Journal’s China correspondent, companies with larger translation discrepancies in their public reports experienced worse response gaps. Even Mandarin-speaking analysts at foreign firms faced communication challenges, leading to less accurate earnings predictions. The WSJ highlighted that selective disclosure reduces stock liquidity and increases capital-raising costs for these companies.
Democratic sweep in US
Meanwhile, the big news of the day was the Democrat Party’s sweep of both Congress and the US Senate in the mid-term elections on Tuesday, which looks set to derail Donald Trump‘s economic agenda as he heads into his final two years as president. Equities and the dollar sank initially amid warnings that the result – which saw Republicans ousted in a so-called blue wave – could lead to gridlock on Capitol Hill after Donald Trump warned that he would become “Mr Veto”.
Tech firms, already under pressure, were also hit by concerns about the future of data centre building, a major bone of contention in many places. Tens of millions of Americans cast their vote in the polls, which were pitched as a referendum on the White House amid anger at surging petrol prices, tariffs, and the Iran war. With Democrats winning key races to flip the House and Senate, including once-safe Republican seats, Chris Weston at Pepperstone flagged the potential for legislative gridlock, fiscal brinkmanship, debt-ceiling disputes, and congressional investigations.
Bitcoin briefly hit a six-week low before recovering to trade close to flat by 0715 GMT at $78,070. Analysts say support has also been hit by the $6-billion hack of the Binance exchange late last week, which is the largest-ever crypto heist. The hack has raised concerns about the security of digital assets and the potential for further regulatory action.
Market close
London’s FTSE 100 closed up 0.2% at 10,663.78, with the euro/dollar up at $1.1233 from $1.1191 on Tuesday, and the pound/dollar up at $1.3473 from $1.3413. The dollar/yen was down at 158.10 yen from 158.75 yen, and the euro/pound was down at 83.40 pence from 83.43 pence.
West Texas Intermediate rose 0.3% to $96.37 per barrel, and Brent North Sea crude rose 0.4% to $104.02 per barrel. New York’s Dow closed down 0.4% at 51,786.72, as the market reacted to the Democratic sweep in the US mid-term elections and the potential implications for the economy and trade policies.
