SHANGHAI”•China is the world’s second-largest economy and has one of the fastest growth rates of any G20 nation, but its stock markets have been among the worst performing in the world this year.
Starting with a botched attempt to reduce volatility that instead triggered a spectacular meltdown, Chinese bourses have spent the year struggling against feckless policymakers, massive capital flight and a languishing currency.
The benchmark Shanghai Composite Index struggled towards the finish line Thursday down 12.5 percent for the year, compared to falls of 0.6 percent by the Hang Seng Index in Hong Kong and 2.2 percent for Japan’s Nikkei 300. Both markets are trading Friday.
As of Thursday, it had the worst showing among the 40-plus countries tracked by Wall Street Journal’s Market Data Center, behind even debt-ridden Portugal.
It is a significantly worse performance than 2015’s wild ride, when the SCI surged by 60 percent in the first half before plunging by more than 40 percent in under three months. Even so, it finished the year with an overall gain of 9.4 percent.
Then authorities brought in a “circuit breaker” mechanism in January to automatically shut down trading if prices plunged. It went into effect twice in one week, kicking off a self-reinforcing selling panic that spread to global markets, and was scrapped after just four days.
“The Chinese market had a meltdown this year, and so far it has only half recovered from that,” Northeast Securities analyst Shen Zhengyang told AFP, adding the market was still in “slow and gradual restoration.”
The chairman of the China Securities Regulatory Commission was sacked over the debacle.
His replacement, Liu Shiyu, has kept a low profile, hurting market confidence and leaving investors seeking direction, said Oliver Rui, a professor at the China Europe International Business School.
“People don’t understand much about the regulator’s policy direction,” he said, adding that the lack of clarity partly explained the market’s weak performance.
The falling yuan”•lowered seven percent by the central bank over the year in the face of a surging dollar”•has also driven investors abroad in search of better performance.
“When the yuan falls, market capital runs off overseas to hedge the risks,” said Dickie Wong, Hong Kong-based research director for Kingston Securities, adding it also made foreign investors “less optimistic about mainland companies.”
Even the year’s few bright spots have failed to live up to expectations.
Earlier this month, China launched a long-delayed program connecting its second exchange in Shenzhen”•which has lost 14.8 percent so far this year”•with the bourse in Hong Kong.
The Hong Kong-Shenzhen Stock Connect builds on a similar scheme with Shanghai and gives foreign investors access to many mainland tech shares.
But it has so far failed to live up to the hype, with Shenzhen’s shares more expensive than those in Hong Kong, making it unattractive to foreign investors, while the entry threshold for mainlanders to buy Hong Kong shares was set as high as half a million yuan ($72,000).