Since the peak in 2007, the Shanghai Composite Index is down 52%.
By Wolf Richter for WOLF STREET.
Starting today, China’s stock exchanges stopped releasing daily data on fund flows from overseas investors. Fund flows are a key sentiment indicator, and the sentiment of foreign investors has been morose as China’s stock market has become an immense long-term money pit.
And foreign investors have yanked their money out of Chinese stocks, including Warren Buffett whose Berkshire Hathaway has sold over half of its stake in BYD. Year-to-date, fund flows from foreign investors in Chinese stock markets were negative as of Friday, according to Bloomberg. Obviously, in order to prop up the stock market, weak data must be obscured, and so this daily fund-flows data will not be forthcoming any longer.
China’s stock markets have been a long-term horror show for foreign investors. Since the peak in October 2007, the Shanghai Composite Index has plunged 52.5%. Today, at 2,894, it’s back where it had first been in January 2007. Buy and hold forever?
“Beijing stopped the release because the data hasn’t been looking good, and it’s volatile,” Xin-Yao Ng, director of investment at abrdn Asia Ltd, told Bloomberg. “They probably don’t want the data to amplify capital outflows” but “it doesn’t solve the root of the problem.”
The remaining options to get insights on fund flows by foreign investors are now the quarterly reports on financial assets held by overseas investors released with a lag by the People’s Bank of China. In addition to the long lags, they also measure the value of outstanding equities held by foreigners through broader channels, rather than flows, Bloomberg said.
Chinese authorities have tried multiple times to prop up the stock markets in various ways by leveraging the “national team” of state-controlled institutional investors that would buy stocks and stop selling stocks. Authorities would warn against “malicious” short-selling and exhort companies to increase share buybacks. The PBOC would boost liquidity, etc.
These efforts played out again early this year, including with state-controlled funds purchasing an estimated $66 billion in ETFs, to stop yet another wave of selloffs that had started in mid-2023.
This stuff works, for a little while, as foreign speculators piled into it trying to make short-term gains. So the Shanghai Composite Index, upon all these efforts to prop up the market, spiked 17% (or by 469 points) from the February 4th low (2,702) to the May 19th high point (3,171).
But then foreign investors took their profits and yanked their money out, with fund flows from overseas investors having now turned negative for the year 2024.
And the Shanghai Composite Index has now given up 278 points, nearly 60% of the 469 points it had gained during the prop-up rally, in a replay of prior prop-up rallies. So it’s far better to obscure the sentiment index of foreign speculators, it seems.
Long-term investors are looking at one of the ugliest stock market charts around — see the chart above — that since 2007 has described a relentless money pit, with huge rallies followed by huge declines. And even success stories, such as BYD: Since Buffett started dumping the stock in 2022, the stock has dropped 33%.
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If I have to guess maybe the unintended consequences of this will be from Chinese investors pulling their money even more now due to the rampant/blatant lack of transparency. Which will create even more incentive for them to dump it into “safe” asset like housing in US, especially in Asian heavy communities in SoCal…which was their playbook for well over a decade now..
Good times and just when we thought foreign investors money is slowing down, this might help bring that back up again and once again F over local buyers
SoCal needs a vacancy tax on housing.
Couldn’t agree more but will probably see one around the same time I see pigs fly
When someone uses the word “needs” that person is almost always wrong.
I’m for more taxes, the burgermeister will be pleased. Where i live I would like to tax the cat that keeps pissing on my door, the mailman as well who keeps putting my mail in the wrong box.
That’s about it.
The tax can be “removed” on people who stay healthy and also who have a good driving record…and grandmas…and ugly people..
Many areas of Canada will enjoy the flow of Chinese money again.
Someone has to afford buying houses at the level the average Canadian cannot buy in the next few years.
Why are Chinese equities performing so poorly?
The PRC economy, and particularly the immense RE sector, is a declining disaster which is in the process of return to equilibrium.
How ironic, the corrupted PRC that everyone hates will allow RE to fall back down to equilibrium meanwhile in the US we won’t let RE fall back to fundamental and will only subscribe to things will go to forever narrative while regular middle class folks get F over.. makes you wonder which side you should really cheer for if you’re not an asset holder..
I recently read that Chinese equities, while seriously risky for a whole lot of reasons, still have some fans left. Take Michael Burry for instance who recently loaded up on Alibaba and Baidu.
I have a relatively small position in a Chinese Small cap ETF that while down quite a bit from it’s earlier highs at least it pays a nice fat 6% dividend.
Remember all of those satellite photos of empty cities being built in China people were brining up over a decade ago?
Those stories were clickbait for ignorant Americans. You can show a photo of a construction site and make up a story to go with it, and Americans will buy it as the truth every time. Time, Inc, still has an undated website up that shows the “ghost city of Ordos” There is so little truth in the article it is criminal. Time is considered reputable. BTW, Ordos was 99% sold out preconstruction, by cash buyers. The neighborhood (it is not a city) was built for 300,000 and is 50% occupied. Being a 20 year project, it is exactly on schedule.
“is 50% occupied”??? wow, after all these years? I didn’t realize it was that bad. That’s a zombie neighborhood. It doesn’t matter who owns the homes — they could all be sold — what matters is if they’re occupied. A lot of vacant housing stock is a nightmare.
There is a lot of clickbait but china is a big country. There is a lot of empty real estate.
“Why are Chinese equities performing so poorly?”
This is a very good question, Bob.
Considering that the Chinese macro economy grew incredibly (like world-historic incredibly) from 1995 to 2009 or so and then more slowly since (although pretty damn fast considering its then elevated base), it is a very fair question to ask why Chinese equities have done so poorly for so long.
My very broad guess,
1) Fairly extensive prior equity mal-investment due to artificially strangled interest rates and other government subsidies (looking very, very hard at you too, US – although here the paint huffing valuations have lived on…so far).
With less per capita wealth, the Chinese have shied from equity sh*t-holes faster than Americans.
(Also, I don’t think there is anything like the US’ 401k set-up, which has made US equity over-valuations sorta automatic…)
2) Even more horrible requlation of equity markets than here in the US. Entire multi-billion dollar Chinese public companies have periodically been exposed as near-utter frauds.
When your per capita GDP is maybe 12k (China) versus US’ (82k or so…allegedly/transiently) people are much, much more wary of flushing their savings down some fraudster’s equity rathole.
Americans have had much more accumulated wealth to piss away in asinine equity valuations.
3) Related to number 2, there is likely a strong Chinese preference for real assets (including RE, with its own big batch of fraudster rat-holes, alas).
Basically, equity is a risk-on investment and Americans have been more-risk drunk/blind for a variety of reasons (almost all of them bad…but the US has had more legacy wealth to piss away).
They’re devaluing the Yuan in an attempt to prop up the housing market . Caught in the crossfire is stocks as no foreigner wants stocks in a plunging currency. At least we can say prior to this year the Chinese government didn’t rig and manipulate stocks. If the U.S. stock market ever falls back to fair market value Chinese stocks will be one heck of a lot lower than they are today.
“And I wonder, still I wonder who’ll stop the rain?” (in China) CCR.
China is slowing down, USA slowing debt saturated, Europe ha?
If AI isn’t the REAL THANG.
What or which country is going to drive markets? India? WW3?
Only Wolf knows for sure!
AI is pretty real in monetary terms. Nvidia added $800 Billion in 8 trading days. This has to be a record of some kind. I would ask ChatGPT about it, but it was last trained in 2023.
Nice if one got in at the right price (I did, to an extent), but I limit my stake according to the familiar possibilities of a bubble. “A huge wind cannot last all morning, and a sudden downpour cannot last all day. If heaven and earth cannot make it last, how can people do it?” — Lao Tzu, circa 250 BCE
There is nothing ‘real’ about speculators plunging into manic speculative stocks like Nvidia.
not just nvidia, but the whole market. earnings don’t matter. wolf calls bitcoin a gambling token. that’s what the s&p is at this point.
companies shouldn’t even bother doing earnings reports, as they’re irrelevant.
The owner just dumped 3/4 of his shares and their earnings come out August 28th. Gee, I wonder if he knows something?
You need to spring for GPT Pro to get live data. Got the company to pay for it, so now I can answer that question:
“NVIDIA added around $800 billion in market value over an 8-day period recently, which is a record. This significant increase in market capitalization is among the largest for such a short timeframe, highlighting the company’s strong position in the AI and semiconductor industries and reflecting investor optimism about its future prospects. What stands out is that NVIDIA set a record earlier this year by adding $330 billion in market value in a single day, the largest daily increase in history.”
I just did back of a napkin calc to get these figures ( so +/- a day and $50 Billion).
Sounds like the latest and gratest ChatGPT just reiterated same numbers you asked back to you.
AI doesn’t see anything suspicious or unhealthy about the situation. That tells you something about the value of AI’s “information”.
Notice, I said 8 trading days (correct), ChatGPT Pro Max said 8 days (wrong). GIGO.
Maybe Danno,
But I suspect Wolf knows NOT to predict the SMs, just as some florida folx know not to predict the weather…
Old florida proverb: “Only fools and tourists predict the weather in Florida”; however, ya qualify as a tourist for the first 7 years ya live there.
After that, if ya haven’t learned…
Remember when Stan Druckenmiller made the Short Dollar, Long China call. Why he put on both trades not sure, neither has worked out. Between China’s economic problems and Japan’s monetary problems the next global depression will probably start in Asia.
Capital and talent always go where they are respected. Unfortunately, aside from gobbling up cheap(er) real estate in the “more safer” parts of the world and reputable corporations with steady income streams, where is that exactly now? I don’t see how this isn’t very inflationary for the U.S. and Canada. What am I missing here? Central banks around the planet have all been on the same page. How is a global hyperinflation not “baked in” now?
After the GFC the greatest flood of liquidity / stimulus was from China.
But wouldn’t be a primary reason to stay away, not to finance our adversary (lightly put)? Like what happened with RU.
What amateurs! These guys need to learn how to manipulate financial markets from the pros at the Working Group on Financial Markets (Plunge Protection Team). Since 1988 they have been hard at work keeping all the plates spinning! Is this a great country or what?
“it doesn’t solve the root of the problem.”
So what is the root of the problem? The Chinese demographic bomb combined with their RE crash, and cronie communism?
There are these two big competing narratives, one being the PRC is falling apart, the other, they are about to eat our lunch. I have read many books and articles, but I can’t get that sorted. This stock market stall suggests failure, which is a helpful data point, along with this hiding the current info, but there are so many data points. I know nations (like businesses, and business people) might feel they must master that sort of obfuscation to prevent a run. But a run on the PRC would be scary for everyone. This in itself doesn’t seem a tipping point, though. The stock market there always seemed a bit of a Potemkin village.
Its a middle ground like always. The PRC will muddle through. They want your lunch but the growth has been fueld with dept and mal investment. Its not a perpetual growth engine.
They need to restructure and who knows how painful that is. Unemployment is an issue right now.
Might end up in the middle income trap. Might overtake the US by virtue of a decline in the US.
But I think demographics is destiny and a shrinking population will stagnate at best.
Very insightful stuff. At one time people were China stock crazy. I absorbed some of that value destruction myself a decade ago. Glad I took my lumps and stayed away.
Thank you Wolf.
I’ve read the CCP doesn’t care about the stock market, they care about their bond market and their currency. I remember last year there were a lot of pundits betting on the some back of China and by the time that narrative was everywhere the market was already heading down. So many rug pulls. Can’t wait for AI to come crashing down!
That’s my thought too. They realize they need to play by market rules to some degree(i.e. must play by most of the rules of the dominant economic system), but that doesn’t mean any of their real objectives align with it. They play a long game and here in the US that concept doesn’t exist.
Their biggest worry by far is their real estate market
What bond market? Please enlighten us.
Maybe China does not really care about it’s stock market. Maybe, for the people that run China, the purpose of the last 30 years was simply modernization and the construction of productive capacity, With that in hand, social control returns as the priority.
Coincidentally, in the last couple of years, China authorized it’s banks to offer Gold accounts and have been encouraging private holding of Gold which seems to be at least one explanation for the recent Gold rally.
We should not assume that US narratives translate to Chinese goals and outlooks.
Between 2009 and 2014 SPX trend was up while SSEC was trending down. US 1M stayed flat since 2008. When Yellen promised to raise rates and China opened their stock market to foreign investors in 2014, for the want of dollars. SSEC popped up. SPX first stopping action was between Sept and Oct 2014 when SSEC bubble turned around and plunged. US investors lost their shirt. Between Oct 2014 and Feb 2016 SPX was in accumulation, until the Nasdaq breach 2000 high. The Nasdaq took off. SSEC is either in accumulation or distribution for 10 years.
I have noticed that here in China people invest in a company in ways other than stocks. To get returns higher than CD’s, most people I know buy shares in trusts. These are much like corporate bonds or junk bonds. In China, the stock market is not a place you would put your life savings or retirement money. It is an investment of last resort. First a person has 2 or more homes, mortgage-free. Then a significant savings account. The stock market is viewed as something like a casino-too fickle for anything but gambling.
Is the cultural perspective of these financial vehicles that different? Fascinating and not something I would have considered.
ShortT – …an examination of Chinese history reveals a longstanding view of non-Chinese Asians as well as Occidentals as uncouth barbarians, not helped in more recent times by the Opium Wars and the ‘Open Door’ policies conducted by the West (…oft-mirrored, but not limited to, Western cultures in dealing with each other, the Second, Third, and non-Western worlds…). Cultural perspectives, indeed…
may we all find a better day.
But it worked very well elsewhere. BOJ, ECB and FED bought vast amounts of asssets since 2007. NASDAQ is five times higher thanks to ridiciolus money printing by FED. If Chinese CB would print money half as crazy as FED, Chinese stocks would be in much better condition.
USA has approaching 120% debt of GDP. China over 250% of GDP, lots of “printing”.
Where do you get 250%? All my sources, mostly IMF, put it around 89%.
Few searches. E.g. Bloomberg:
“China’s Debt-to-GDP Ratio Rises to Fresh Record of 286.1%
By Myungshin Cho
January 16, 2024 at 8:03 PM PST”
Maybe depends on skinning.
Biker,
Your figures are comparing two different things. For the US, Federal government debt to GDP is around 120%. Whereas the 250% figure for China is total debt (government, corporate, individual, etc.).
Biker-
Look into LGVF’s (local government financing vehicles).
This segment of Chinese debt is gargantuan, and is instrumental in CCP manipulation of onshore economic growth, control of economic development, and plays strongly into influencing foreign investments in China.
USA is not the only home of creative “financialization.”
Even China’s central government calls this LGVF debt “hidden debt” because no one can really track it.
Yeah, maybe not apple to apple. I was aware of China crazy debt for along time, just actual figures could be confusing.
But debt is debt, and the only good thing about some would be if it is actual investment in the future. It does not look like that for China. RE, LGVF. LGVF is pretty bad debt. The recipients are not really are able to pay it back. Many articles about it in the last years.
What strikes me is that many say that US is in a blackhole. Like the rest of the world is golden. US could be the best of the bad.
Admittedly, I bought some Chinese stocks and etfs around COVID time, (still holding for laughs if nothing else) and their behavior has been peculiar. Just suspicion with no evidence but it seems they are somehow using these stocks as a vehicle to collect investors funds even if the companies might be faring fairly well. I mean China is making a lot of money selling products to the US/big trade surplus right? But somehow their stocks don’t do well, however I also think the big US stocks and indexes are overvalued/in a bubble so maybe the Chinese stocks might look a little better if US stocks let out some hot air, idk. But I totally disagree with a govt buying stocks. That isn’t free market and it’s detrimental to society, like the US buying MBS.
Majority of Chinese wealth are in real estate, not in stocks.
Yeah, and real estate is in terrible shape.
Are we talking US or China Real Estate in terms of where most of Chinese wealth is located?
Most chinese wealth cant leave the country. They are happy if they’re able to invest in HongKong
Here’s a heretical suggestion: go down to your local library that keeps actual books made of paper and ask them for ‘Wealth of Nations’ by Adam Smith, ‘Das Kapital’ by Karl Marx and then the histories of the communist revolutions of Russia and China up to the present day. After digesting that lot you will fully understand why investors with even a 1/4 of a brain will stick with a combination of S&P 500 and IT ETFs. And be careful to vote for politicians who understand what the words ‘free enterprise’ actually mean, regrettably few do, especially the young ones.
Sadly the only federal official who seems to really understand “free enterprise,” which requires extensive antitrust enforcement to ensure competitive markets, is the target of widespread, melodramatic accusations of socialism.
I was noticing an unusual amount of China shilling in the comments yesterday. Could this be akin to the Russians on Zerohedge lol
haha at the idea that the s&P 500 represents anything remotely resembling a free enterprise.
But Wolf, didn’t you hear? USD is now an EM currency and every oil producer is switching to CNY.
Forgot my /s tag.
China is now Japan.
Unusually readable bit over on ZH about growing unrest in China: high youth unemployment, lots of strikes etc. Also references to calls for elections, which would be new and probably risky to say out loud.
Comments usual drivel.
According to ZH, there is always unrest in China, and the country is always on the verge of collapse.
True. also says that about US and EU.. lol
Only one not on verge for ZH although a better candidate is Russia.
they are too honest and naive. why doesn`t china copy wall street which is a massive industry bigging up everything .practically none of the bigger stocks are ever a sell etc etc. the funniest thing is how they the country of record deficits manages to convince us that having trade and financial surpluses and low inflation is BAD.