While stock markets in Japan and the United States continue to be active, there is no end to the decline in stock prices in China. Due to the worsening real estate recession, the outflow of investment money from the Chinese market is accelerating, and it appears that only one person is on the losing side.
In late January 2024, a Hong Kong court issued a liquidation order to the real estate giant Evergrande Group, which further worsened investor sentiment. Finally, a personnel change was announced, which appears to be a change in the head of the securities administration. It is said that the money flowing out of China is heading towards Japan, but what will happen next?
(Naoto Shimomura, China General Bureau reporter)
Sudden “replacement” of the head of securities administration?
"Xi Jinping's leadership replaces top market regulators to stop stock market crash"
On February 7, 2024, the American media outlet Bloomberg announced that Chairman Yi Huiman, the head of the Securities Regulatory Commission, who was in charge of stock price measures, would retire, and Wu Qing, deputy secretary of the Shanghai Communist Party Committee, would be appointed as his successor. I reported it in a breaking news.
Retired Securities Regulatory Commission Chairman Yi Huiman
The authorities have not disclosed the reason, but the market is pointing out that he may have been fired due to the drop in stock prices.
The stock market decline that continued from 2015 to the following year also resulted in the resignation of those in charge, and some investors are saying, ``This is the same pattern as then.''
Chinese stock market continues to decline
Stock prices in the Chinese market have fallen so severely that the top securities administration official has to be replaced.
The Shanghai Stock Exchange's stock index briefly hit the 2,635-point range during trading hours on February 5, the lowest level in about five years since February 2019.
The closing price on this day was a drop of over 9% compared to the closing price at the end of 2023, and a drop of over 27% from the high price based on the closing price in 2021 (September 2021).
According to a summary by the Institute of International Finance (IIF), which analyzes money flows, the amount of foreign money flowing out of China's stock and bond markets in 2023 is 84.5 billion dollars, or 12.5 trillion yen in Japanese yen. I did.
Investor sentiment deteriorates due to economic slowdown
The background is the slowdown in the Chinese economy due to the deepening real estate recession.
Abandoned apartment building during construction
Although the government's goal of increasing GDP (gross domestic product) in 2023 by 5.2% has been achieved, the recovery lacks strength due to the large backlash from the previous year's "zero coronavirus" policy.
Difficult employment situation, increasing consumer preference for saving, and stagnation in demand.
Concerns about increasing deflation.
Decrease in investment by foreign companies due to unclear implementation of the revised anti-espionage law.
Exports slump due to conflict with the United States.
In the absence of an economic driver, Evergrande Group, which was in financial crisis, received a liquidation order from a Hong Kong court on January 29, further deteriorating investor sentiment.
Escape money goes to Japan
It seems that investors who have given up on Chinese stocks are now setting their sights on Japanese stocks.
A fund manager in Hong Kong revealed, ``We have significantly lowered the proportion of Chinese stocks and are increasing our purchases of Japanese stocks.''
In addition to the uncertain future of the Chinese economy, there is also the view that if former President Trump is elected in the US presidential election this fall, it will be inevitable that the US-China conflict will intensify, so we will increase the proportion of Japanese stocks in Hong Kong. The number of institutional investors is said to be increasing.
An official from a Japanese securities company based in China said, ``Due to the slump in the Chinese market, the spotlight has been on Japanese companies with stable business performance and solid Japanese stocks, and inquiries are rapidly increasing.'' .
In addition, orders from Chinese investors are flooding in for ETFs (exchange traded funds) that track Japanese stocks.
In mid-January, the trading value of some products suddenly increased to more than 100 times the previous average, and trading was temporarily halted.
Due to the overheating, the management company warned investors of the risk of loss, but even after trading resumed, the price continued to rise, and trading was suspended intermittently from the next day onwards, an unusual situation.
In China, where capital regulations are strict, there are limited options, and Japanese stock ETFs continue to be ``bulk-buying.''
Are you full of “optimism”?
``The whole country is filled with an atmosphere of optimism.''
Despite the fact that China's stock prices have fallen so much, an article like this was published in the Chinese Communist Party's official newspaper, People's Daily, on February 2nd. I did.
The article praised the government's policies for improving people's lives.
They claim that ``people's sense of well-being has greatly improved.''
However, on the same day, on the Shanghai stock market, the stock index plummeted by more than 4% at one point.
Along with this article, a number of posts on social media mocked the content of the article, including screenshots of charts and stock price boards for Shanghai stocks, which continue to fall.
There are risks to optimism
This is a policy announced by Xi Jinping's leadership at the Central Economic Work Conference held in December 2023, to ``
strengthen economic propaganda and guide public opinion, and loudly proclaim the idea of China's economic brightness.''
Since then, optimism has become prominent in Chinese media's economic coverage, as seen in the above-mentioned article from People's Daily.
However, optimism that is far removed from reality will only dampen investor sentiment and have the opposite effect.
It must be said that excessive optimism runs the risk of obscuring the reality.
What about Japanese stocks due to the inflow of Chinese money?
So, are Japanese stocks safe due to the huge amount of money coming in from China?
The Nikkei Stock Average has hit a new high for the first time in 34 years, and is not far from its all-time high of 38,000 yen set in 1989 during the bubble period.
The focus is on the monetary policies of Japan and the United States.
When will the Bank of Japan make policy changes to normalize financial conditions, and when will the U.S. Federal Reserve (Federal Reserve System) start cutting interest rates?
Bank of Japan Deputy Governor Uchida
On February 8, Bank of Japan Deputy Governor Uchida said at a roundtable meeting, ``Even if negative interest rates are lifted, it is difficult to imagine that interest rates will continue to rise after that, and we will need to maintain an accommodative financial environment.'' '', the stock price rose sharply after his statement.
However, it seems certain that the Fed will cut interest rates before the end of the year.
If the policy direction of Japan and the United States changes, the yen will appreciate, and overseas investors' "buying of Japan" may lose its appeal.
Every time I hear the ``optimism'' that is being conveyed in China, I am reminded of the importance of paying close attention to inconvenient truths.
I would like to limit my optimistic mood towards Japanese stocks to a certain extent, and remain calm and maintain a sense of caution.
Featured plans
Next week, the US consumer price index and retail sales will be announced on the 13th and 15th, respectively.
The Federal Reserve has kept its policy interest rate unchanged for four consecutive meetings, and trends in inflation and consumer spending will be closely watched in predicting the future direction of policy.
Preliminary GDP figures will also be announced in Japan and the UK on the 15th.