Chinese Stocks: What’s Going On?

Chinese Stocks: What’s Going On? 

Chinese stocks just erased over four years of gains, as foreign investors are running away from them as fast as possible. 

China emerged onto the world stage in the 1970s by opening up their country to foreign businesses. Over the past half-century, we’ve witnessed double-digit economic growth, led by the dramatic expansion of their middle class.

Growth is slowing

But that growth appears to be waning, and there may be several reasons. I’ll quickly touch on three.

  1. One-child families. China implemented a one-child limitation on families starting in 1980, which has resulted in the reduced population of younger generations. Despite this policy’s end seven years ago, irreparable harm to the nation’s demographics is apparent. Just this year, India passed China as the most populous nation.
  2. Restrictive government. Over the past twenty years, the Chinese communist government has become more oppressive and restrictive to the working class and the entrepreneurs in China, along with the foreign companies allowed to set up shop there. Restrictions not only limited innovation and growth but also forced many companies to abandon China for other more accommodating countries. 
  3. China overbuilt. China overbuilt both commercially and residentially. Despite the lack of transparency by the government, rogue videos clearly show brand new neighborhoods and even cities that are ghost towns, left to rot away along with their mortgages. It would be interesting to know who owns those loans. 

Impact on Chinese stocks

It all leads me back to the fact that Chinese stocks are getting thoroughly gutted. Don’t think the Chinese government hasn’t noticed. To help prop up their foundering stock market, the Chinese state fund announced they’ve been buying up exchange-traded funds and will continue to do so. The last time they purchased their ETFs was during China’s 2015 market crash. They must know something’s up, and it isn’t their stock markets.

Their dictator, Xi Jinping, just made his first-ever visit to China’s central bank, along with the People’s Bank of China and the State Administration of Foreign Exchange, and the nation’s sovereign wealth fund, trying to shore up confidence in his country’s market. He hasn’t visited those places in the ten years he’s held office, and suddenly he has a hankering to press some flesh at all four offices within a few days? Hmmm.

Stock prices don’t lie

Discretion and secrecy surround China and Chinese companies, and all earnings reports, press releases, and articles, especially puff pieces, must be taken with a big grain of salt. But prices don’t lie, and the drop in Chinese stock prices the past few years, and more importantly, the past few months, has me running from them as fast as I can, maybe for good. 

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The views expressed represent the opinion of Good Life Asset Strategies, LLC. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and nonproprietary sources that have not been independently verified for accuracy or completeness.