China’s ‘broker butcher’ makes bold moves to breathe life into moribund stocks. Will the US$9 trillion market respond?

New CSRC head Wu Qing’s elixir for reviving markets is a cocktail of state intervention, strict law enforcement and a tougher line on fraudulent listings and manipulation

Deloitte expects the moves to improve long-term market health by setting a higher benchmark for listed firms and increasing stock market benefits to the economy

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Published: 11:00am, 20 Apr 2024Updated: 11:40am, 20 Apr 2024

The six-month exodus of foreign capital from China’s US$9 trillion stock market appears to have petered out, as some foreign investors voted with their feet in response to securities regulator head Wu Qing’s push to instil market discipline. It remains to be seen whether this conviction is deeply entrenched among domestic and foreign investors.

Since Wu’s appointment as chairman of the China Securities Regulatory Commission (CSRC) in February, benchmarks tracking China’s yuan-traded onshore stocks have risen by over a tenth from their lows. Overseas investors are now taking a more favourable view of the world’s second-largest stock market because the new regulations lower the threshold for and strengthen regulations on delisting, raise the bar for new listings and strengthen oversight of high-frequency trading and the mutual-fund industry.

“We observe that the Chinese government is more determined to boost the stock market,” said Shi Jian Cortesi, a Switzerland-based investment director at GAM Investments, which has US$70 billion in assets under management.

“With the real estate out of favour, bank deposit paying very low interest rates and stock valuations at very low level, the current set-up makes stocks an attractive option for domestic investors in our view.”

China Securities Regulatory Commission (CSRC) Chairman Wu Qing attends a press conference on the sidelines of the National People’s Congress (NPC), in Beijing, China March 6, 2024. Photo Reuters

Wu’s elixir for reviving the ailing stock markets is a cocktail of state intervention, strict law enforcement and tougher crackdowns on offences ranging from fraudulent listings to stock-price manipulation. While some of the measures have drawn criticism, these efforts all reflect the primary message of policymakers that the stock market exists to serve the economy and is a place for the Chinese to preserve their wealth.

Despite these gains, Chinese stocks remain undervalued, reflecting in part the investor hesitancy.