The sell-off in the Chinese stock market is accelerating, hitting historical lows amid waning investor confidence and a weakening economy.
Particularly, the CSI 300 Index, which tracks the top 300 stocks traded on the Shanghai and Shenzhen stock exchanges, has plummeted to its lowest level since 2019.
On Thursday, September 12, the index fell to 3,172, reflecting a decline of 13.66 points or 0.43% for the day. The current valuation also means the CSI is trading 14% below its annual high of 3,703.
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The index has reached a critical support level near 3,150, a level not seen since mid-2019, pointing to the possibility of entering oversold territory. Therefore, a break below this mark could lead to further downside, potentially triggering a panic sell-off that could push the index below 3,000.
Why Chinese stocks are struggling
Indeed, the stock market’s performance mirrors dwindling investor confidence as major companies report disappointing earnings amid prevailing economic woes. Companies listed on the mainland have recorded a widespread drop in profits during Q2 2024, anticipating that conditions will likely worsen in the third quarter.
Interestingly, firms that recorded positive performance focus on the electric vehicle (EV) industry and the semiconductor boom, capitalizing on global trends.
Additionally, confidence has been punctured after global funds continued withdrawing money from the markets. For instance, in the second quarter of 2024, $15 billion exited the market amid increasing pessimism.
The general economic downturn continues to spread concerns despite the government’s recovery measures. Dominated by a long-standing property crisis, the economy has remained weaker despite authorities allowing state funds to purchase exchange-traded funds (ETF) and stronger oversight of short-selling and quant trading activities.
Concerns over recovery strategies
It’s worth noting that these strategies appeared to be working when the market rallied between February and May this year. Therefore, it can be assumed that the current bearish sentiments signal that investors are looking for long-term solutions.
Looking ahead, the future might be bleak, considering the impending geopolitical tensions ahead of the November United States presidential elections.
During the September 10 debate, both candidates, Donald Trump and Kamala Harris, expressed an anti-China stance—a move likely to see a resurgence of tension between the two countries.
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