"A Truly Bloody Situation"... The Fearful Chinese Stock Market Plunges 60%

With repeated instabilities scattered across the asset market, including the real estate crisis and concerns over an economic recession, the plunge in the Chinese stock market has reached a level of fear. Amid the worst public sentiment among Chinese investors, authorities have been emphasizing their determination to boost stock prices daily, but whether they can actually lift the market remains uncertain. As unprecedented sell-offs continue in the stock market of the world's second-largest economy, theories about a market bottom are resurfacing.

According to major foreign media on the 5th, the Morgan Stanley Capital International (MSCI) China stock index plummeted 61.63% from its peak in February 2021 as of the 2nd. During this period, the market capitalization evaporated by more than $1.9 trillion. This is the result of a complex combination of prolonged real estate downturn, recession fears, and US-China conflicts.

The CSI 300 index, composed of the top 300 stocks by market capitalization on the Shanghai and Shenzhen stock exchanges, fell 6.3% last month. This marks six consecutive months of negative returns.

In response to the ongoing bearish trend, public backlash within China is intensifying. Since the 2nd, Chinese citizens have been posting over 10,000 comments on the Weibo account of the US Embassy in China, expressing dissatisfaction with the sharp stock price declines and economic slowdown.

Chinese authorities have been expressing their determination to support the stock market daily. On the 4th, the China Securities Regulatory Commission announced measures to encourage additional inflows of medium- to long-term funds into the stock market and to crack down on illegal activities such as malicious short selling and insider trading to prevent abnormal market volatility. However, no specific plans have been disclosed yet.

Previously, China temporarily suspended stock lending services to prevent short selling and is reportedly considering a stock market stabilization plan worth about 2 trillion yuan, but experts argue that this is insufficient to stop the 'sell China' trend. Bloomberg reported, "The recent surge in trading volumes of some exchange-traded funds suggests that Chinese state-owned funds may have intervened to support the market," but added, "Historically, such purchases rarely sustain momentum."

Continuous poor performance has even raised margin call risks. If investors who have incurred losses fail to provide additional collateral to their margin trading accounts, their stocks may be forcibly liquidated, which could act as a trigger for a domino effect of crashes in the Chinese stock market.

Some Chinese experts interpreted the intraday plunge followed by a reduction in losses before market close as a signal of a market bottom. This pattern also occurred on the 2nd, when foreign investors repurchased stocks worth 729 million yuan after noon, offsetting some of the market's decline.

Ma Shijian, a fund manager at Longquan Investment Management, assessed, "The Chinese stock market is truly in the bloody final stage of selling." He added, "It is meaningless to be anxious at this stage, as everyone knows the market is near the bottom."