The Shanghai Stock Exchange. (Photo/Xinhua)
China's largest stock exchange hit a 45-month low on Tuesday with fears that it could continue falling without an urgent response from the government.
Within an hour of opening on Nov. 27, A-shares on the Shanghai Stock Exchange crashed below the 2,000 point mark before eventually closing at 1,991 points. A-shares, denominated in the renminbi and purchased and traded on the Shanghai and Shenzhen stock exchanges, are regarded as a national economic barometer, suggesting that investors do not have a firm grasp on the outlook and direction of the economy, according to Duowei News, an outlet run by overseas Chinese.
Economists claim that the 2,000-point threshold could actually be the ceiling for the current economic cycle as opposed to the floor investors believed it to be, meaning that share prices could continue to plummet and may potentially fall below the 1,664-point nadir of the global financial crisis.
Investors will be keeping a close eye on the government's Central Economic Work Conference next month, during which the country's top leaders will set an economic growth target for the coming year, widely believed to be 7.5%.
The conference will be chaired by Xi Jinping, who was named the Communist Party's new general secretary earlier this month, while future premier Li Keqiang will also reportedly give a speech. The pivotal meeting will also be attended by the other members of the new Politburo Standing Committee, the various party heads of provinces and municipalities, as well as the head of the State Council or cabinet. Investors are said to be hoping that the new leaders will be able to devise a plan to reverse market conditions.
Soochow Securities analyst Deng Wenyuan told Duowei that investor confidence is currently the lowest it has been all year and trade volumes have been poor. Investors are looking for a signal as to how the government will respond to the crisis but right now the direction remains unclear, he added.
China's stock market has dropped 19% since the start of the year, making it the worst performer of any country in the world. By comparison, struggling economies such as Spain and Italy have only seen stock market falls of 8% and 3% for the year, respectively.
Economic commentator Ye Tan believes China's stock market is nearing its bottom but is not sure when there will be a rebound. Given the many uncertainties that remain, the market could fall to as low as 1,800 points, Ye said.
Economist Han Zhiguo said during a recent discussion forum that China's stock market performance is reasonable given that its four major economic drivers are no longer effective. The first driver is its population, the positive effect of which has subsided as indicated by the latest round of cost-push inflation, he said. The second is reform, while the third is the benefits from joining the World Trade Organization. The fourth is the boost from the real estate sector, which has been all but killed off by government suppression of housing prices to reign in an overheating market, Han said.
Xi Jinping 習近平
Li Keqiang 李克強
Deng Wenyuan 鄧文元
Ye Tan 葉檀
Han Zhiguo 韓志國