- After a post-COVID rally, the Shanghai Composite has now fallen to a 4-year low and the Shenzhen Composite to a 5-year low.
- Analysts point to the abuse of the options market by institutional investors as one explanation for the decline, while others believe the overall lackluster market confidence level is the root cause.
- As of 2022, 61 percent of trades in the Chinese stock market are made by individual investors, compared to around 35 percent in the US. The dominance of individual investors over institutional investors implies that declines in the Chinese stock market are more directly felt by the Chinese citizens.
- While Chinese citizens rarely take to the streets to protest, they have done so in the past when their financial interests were threatened. The Chinese government, therefore, has a political interest in keeping the stock market from falling too low to prevent social unrest.
- In response to the freefall, the People’s Bank of China announced an unexpected 0.5 percentage points cut in the reserve ratio on Jan 24th in an attempt to save the stock market, but the measures have so far failed to stop the decline.
Sinolytics is a research-based business consultancy entirely focused on China. It advises European companies on their strategic orientation and specific business activities in the People’s Republic.