China’s so-called “national team” has spent up to 900 billion yuan (US$145 billion) in its recent market rescue effort.
That’s 1.6 percent of the stock market capitalization and 2.2 percent of the free-float, according Goldman Sachs.
The team likely focused on blue chips and defensive stocks including banks, insurers, food and healthcare companies.
However, market turnover kept contracting as individual investors remained on the sidelines.
On Thursday, turnover in Shanghai and Shenzhen fell to 350 billion yuan, sharply down from more than 1 trillion yuan in May.
Investors should be more cautious as the market continues to lose momentum.
China Securities Finance Corp., the state-owned margin lending agency, reportedly spent up to 3 trillion yuan to halt the market crash.
And it’s seeking a further 5 trillion yuan to bolster the market if necessary.
The market rescue may not work without the participation of retail investors.
Heavyweights such as PetroChina (601857.CN) and Ping An Insurance Group Co. of China (601318.CN), both of which are backed by the state, have weakened in recent days.
The team may not undertake massive buying of their shares in the short term unless there is a dramatic price fall.
The financial sector has already been battered by the sluggish equity market.
As many as 11 mainland brokerages have announced lower earnings for July.
CITIC Securities (600030.CN), one of China’s best-performing securities brokerages, reported a 37 percent drop in unaudited net profit to 1.5 billion yuan in July from the month before.
By contrast, Industrial Securities (601377.CN) saw a 78 percent profit plunge to 109 million yuan last month.
Meanwhile, the non-performing loan (NPL) ratio rose to its highest since 2010 at the end the second quarter.
In the first half, NPL in the banking sector climbed 35 percent to 1.8 trillion yuan from a year earlier.
The NPL ratio reached 1.82 percent at end-June compared with a 1.64 percent increase in late 2014.
China’s stock market crash started in mid-June, so it may not be directly associated with deteriorating assets of Chinese banks.
The third quarter data could be even more alarming.
Banking stocks may lack upward momentum due to concerns about earnings.
The government should focus on bolstering real economic growth and restoring market confidence.
Beijing has limited leeway to boost the real economy. Eventually, it might resort to investment as neither consumption nor exports is unlikely to pick up anytime soon.
National policy has shifted back to infrastructure and livelihood issues.
The National Development and Reform Commission has approved trillions of yuan worth of infrastructure projects since last year and released construction funds to ensure progress in these projects.
This article appeared in the Hong Kong Economic Journal on Aug. 7.
Translation by Julie Zhu
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