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.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.