On December 16, the Shanghai Composite Index fell by 1.11%, the Shenzhen Component Index dropped 1.51%, the ChiNext Index declined 2.1%, and the CSI 300 slid 1.2%, once again dampening investors' "bull market sentiment." So, what triggered this downturn?
Analysts have cited several factors: the Bank of Japan is reportedly considering an interest rate hike and plans to sell ETFs in January next year; the South Korean won has plunged against the U.S. dollar, prompting emergency stabilization measures; the Bank of Thailand has intervened in the baht's exchange rate; and a prominent Wall Street bear has warned that the AI boom may fade by 2026, dragging down U.S. tech stocks. Some institutions also claim that China's market momentum weakened in Q4 and will remain swayed by global risk appetite until key policy meetings early next year.
But can these factors truly derail China's stock market? Unlikely. China's economic fundamentals remain stable, with positive trends evident from January to November: retail sales grew 4% year-on-year, fixed-asset investment (excluding real estate) rose 0.8%, industrial output increased 6.0%, and high-tech manufacturing output surged 9.2%, with smart consumer device manufacturing up 7.6%. While challenges like sluggish investment growth and subdued CPI persist—and further stimulus is needed—the overall economic outlook remains favorable.
Moreover, regulators have introduced long-term investment incentives since last year, with insurers and financial institutions entering the market via index ETFs. Monetary tools like relending and securities swaps have also played a role, while Central Huijin, acting as a quasi-stabilization fund, has bolstered market resilience. In theory, policy support and market-driven operations should stabilize sentiment and expectations.
Yet since October last year, monthly single-day drops exceeding 1%—even 6-7%—have persisted. Many blame major shareholders' sell-offs and quantitative trading, calling for curbs on these "short-selling forces." However, the root issue lies in insufficient long-term capital.
China's stock market also suffers from poor media coverage, with major institutional investors—insurers, brokerages, and fund houses—failing to provide balanced, constructive analysis. Instead, sensationalized narratives dominate. Without mechanisms to counter misleading interpretations, herd behavior and panic selling will persist. Claims like "China's market momentum is weakening and swayed by global risk appetite" are, in my view, baseless. Why should China's market follow global whims instead of being steered by domestic capital?
The U.S. stock market's strength stems not just from robust competition but from the decisive role of its institutional investors, whose pricing power aligns with their influence. Only when China's major financial institutions unify their voice and pricing power will market governance improve. If domestic players keep ceding authority by fixating on U.S. stocks and the dollar, even the strongest policies will be undermined.
Major institutional investors must step up—advocating for China's market and addressing public concerns like sell-offs and quant trading.
Irresponsible blame-shifting after every market plunge must end.
Comments