Investors in mainland China are currently facing significant challenges, as confidence continues to wane across the capital markets, leading to a pronounced downturn in both stocks and bonds. In light of these pressures, the Chinese Communist Party (CCP) has expanded its efforts to stabilize the markets, employing various intervention strategies through its stabilization fund to influence the stock, bond, and foreign exchange markets. Analysts believe that these measures do not genuinely restore market confidence and reflect a reluctance on the part of the CCP to implement substantial reforms.
On November 6, the three major indices of the A-share market in mainland China opened the day with declines, although they attempted to recover throughout the morning. By midday, the losses had somewhat moderated, but by the close of the trading session, all three indices still ended lower. The Shanghai Composite Index fell by 1.1%, closing at 3,649.18 points; the Shenzhen Component Index experienced a drop of 2.57%, ending at 11,175.78 points; and the ChiNext Index saw a significant decline of 3.96%, finishing at 2,465.23 points. The combined trading volume for the Shanghai and Shenzhen markets was 1.66 trillion yuan, representing a decrease of 460.2 billion yuan compared to the previous trading day, with over 4,700 stocks across these markets posting losses.
Amidst this backdrop of declining investor confidence, the number of new account openings has also seen a downturn. Data reveals that the number of new A-share accounts opened in October amounted to 1.5006 million, while new fund account openings reached 98,400, and new B-share accounts were a mere 4,000. In total, the new accounts opened amounted to 1.5994 million, marking a new low for the year.
Among these figures, individual investors accounted for 1.4905 million new A-share accounts, reflecting a 21.54% decline from September and a 35.26% drop compared to October of the previous year. Institutional investors opened only 10,000 new A-share accounts, which is a decrease of 17.55% from the previous month.
On the same day, Premier Li Qiang of the State Council convened a meeting to discuss stabilizing the capital markets. Furthermore, on November 5, the People’s Bank of China published a report by Governor Pan Gongsheng outlining monetary policy tools aimed at supporting the capital markets, asserting the need to maintain stability across stock, bond, and foreign exchange markets.
Expert on Chinese issues, Wang He, believes that the authorities are increasingly aware of the critical state of the capital markets and acknowledge the problematic essence of A-shares. However, they appear neither willing nor able to undertake meaningful reforms. The regulatory techniques being employed have become increasingly sophisticated, capable of temporarily invigorating market performance, yet they fail to address the underlying issues that render A-shares undesirable. Even if there is a rebound in the broader market, it is often a passive reaction to policy pressures rather than a genuine restoration of market confidence; such upturns tend to be fleeting.
Currently, the stock and bond markets in mainland China continue to experience a volatile trend. Data from third-party rating agency United Credit indicates that hybrid financial products have recently exhibited a seven-day annualized return of -5.81%, while equity financial products reported an alarming -100.12%.
As of November 6, several wealth management subsidiaries from major state-owned banks, including ICBC Wealth Management, Agricultural Bank of China Wealth Management, and Huaxia Wealth Management, have issued advisories urging investors to extend their holding periods and avoid frequent buying and selling.
In a statement titled “To Investors: Amidst Volatility, Await Stability,” ICBC Wealth Management noted a noticeable alleviation of valuation pressures and excess crowding compared to the end of the third quarter, indicating limited potential for further drastic declines.
Meanwhile, Agricultural Bank of China Wealth Management’s analysis pointed to a confluence of factors that has resulted in a rare “double kill” scenario for both stocks and bonds. On one hand, the fallout from real estate credit risk events has amplified a cautious sentiment in the bond market. This was compounded by tighter liquidity at the end of the month, coupled with increased profit-taking by institutions, leading to simultaneous adjustments across both interest rate and credit bonds. On the other hand, disappointing earnings reports from several companies for the third quarter have constrained new funding in the equity market, perpetuating a phase of low valuations and stability building.
This marks the second time this year that asset management companies have collectively sought to reassure the market, a scenario reminiscent of similar efforts made in March.
Additionally, a large state-owned enterprise in Zhuhai, Huafa Group, has recently surfaced in a debt crisis, with over 400 billion yuan in interest-bearing debts and overdue trust products along with extensions of bank loans. This has prompted a reevaluation of the credit risk associated with local state-owned enterprises. As bonds are being sold off and ratings placed under negative observation, the crisis is expanding from corporate liquidity challenges to the broader bond market.