US funds not bailing on China yet

The relative calm in mainland markets followed a barrage of government measures this week as policy makers scrambled to put a floor under a stock market that had tumbled around 30 percent in just three weeks, wiping trillions of dollars off the market value. The Shanghai Index hit a June 12 peak of 5178.19, a seven-year high that was up more than 162 percent from its 2014 low. What’s more, the country has halted all initial public offerings and more than half the country’s stocks have suspended trading altogether.

There have been signs of overheating in China for a while.

Before Chinese shares started their tumble in June, they had risen an astonishing 150 percent over the year.

The most compelling theory why the bubble burst: Chinese economic growth is the weakest it’s been since 2009. At the same time, state-owned media has encouraged ordinary Chinese for months to load up on shares. Meanwhile, shares of Coty dropped 4.7%, following P&G’s agreement to sell a significant part of its beauty business in a $12.5B deal to Coty.

An investor observes stock market at a stock exchange hall on July 8, 2015 in Fuyang, Anhui Province of China.

When he opened the stock account in May, the Shanghai index was at 4,800 and he hoped it could smash through its 6,124-point record from 2007.

As the losses have deepened, though, worries have increased and officials have taken direct action to stem the selling.

[NEW YORK] After nearly a month of watching Chinese stocks in free fall, some United States fund managers are buying shares at what they consider distressed prices, though they predict continuing volatility – and perhaps more declines – ahead.

“They included a ban on big shareholders – those holding at least five percent stakes – and company executives from selling stock for the next six months and a police crackdown on short-selling”.

It’s actually made things worse.

Citic Securities Co. led gains on the H-shares gauge, surging 18 per cent. China’s largest-listed brokerage had slumped 32 per cent during a five-day rout. Among 1,339 stocks that resumes trading in Shanghai and Shenzhen, 96 percent posted gains of over 9 percent on Thursday. This has been happening to millions and millions of Chinese investors.

Li nevertheless noted that it’s very “naïve” to equate government credibility with the performance of stock markets. “Markets survived a combination of Greek and Chinese body blows and a standing four-hour count to come out swinging Friday”.

“But it is concerning that the Chinese government doesn’t allow market forces to work, and that’s something China must change over time”.

“With the news from China starting to improve, there may even be relief if the uncertainty over Greece’s membership is finally resolved”, analysts from Capital Economics wrote in a research report. “There is no particular reason to have lost confidence”, he said Thursday. Indian stocks, on the other hand, are overvalued and not related to fundamentals, so it is unlikely that foreign institutional investors will rush to the Indian markets. But economists don’t expect the market meltdown to do much damage to the real economy. It’s been a popular area, with more than $13 billion flowing in this year, and Chinese stocks can make up about a quarter of these types of funds.