China’s Market Rescue Is Not Helping Matters

What’s a Chinese company worth?

That’s always been a difficult question in a country where individual investors drive more than 80 percent of trades on local stock exchanges. Now, though, finding the answer has become harder than ever.

Between unprecedented government intervention to prop up the $6.5 trillion equity market and trading suspensions in more than 1,300 companies, analysts can no longer rely on share prices as an indicator of corporate value in the world’s second-largest economy.

The remarkable turn of events comes less than two years after China’s ruling Communist Party vowed to give market forces a bigger role in the economy, part of its largest reform drive since the 1990s. While the stock-market rescue mission is designed to stem a rout that erased $3.2 trillion in three weeks, it may end up making matters worse. Traders rushed to sell whatever the could on Wednesday and foreign investors extended a record three-day exodus as the Shanghai Composite Index sank 5.9 percent.

“The market has failed,” said Hao Hong, a China strategist at Bocom International Holdings Co. in Hong Kong. “It’s distorted because we keep changing the rules as we play the game.”

As the Shanghai Composite’s record-breaking boom goes bust, President Xi Jinping’s government is deploying the heavy hand of the state in an attempt to prevent falling stock prices from eroding confidence in his leadership. China now has more than 90 million individual investors, a constituency that’s larger than the Communist Party.


Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell