Stocks have become the topic to avoid at dinner tables in China these days.

The new year has seen anxiety over China’s slowing economy flare spectacularly in its giant stock market, with Shanghai dethroned as Asia’s biggest equity market and Hong Kong, where I’m based, briefly overtaken by India as the world’s fourth-biggest bourse.

In all, three straight years of losses have wiped more than $6 trillion from the market value of Chinese and Hong Kong equities since a peak reached in 2021.

It’s not just professional traders or fund managers who are losing their shirts.

China’s equity market has more than 200 million retail investors, many of whom have traditionally looked to stocks and the property market as ways to grow their money amid rock-bottom savings rates — only to find their wealth shrinking from both.

That in turn is slamming consumer confidence and dragging significantly on the world’s second-biggest economy, a key engine for global growth.

And the hit to mom-and-pop investors is sizeable. If an individual pumped 100,000 yuan ($13,950) into China’s benchmark CSI 300 index in the beginning of 2021, chasing the rally back then, that investment would have shrunk 36% by now.

If you think that’s bad, the same amount of money invested in Chinese tech companies listed in Hong Kong would have lost more than 60% of its value.

By contrast, putting those funds to work in the S&P 500 or the Nikkei 225 would have returned at least 30%.

These sort of losses, primarily incurred by everyday people, pose a real risk to President Xi Jinping and his government as our Big Take on the topic showed.

Given that, authorities swung into action this week — starting with an order by Premier Li Qiang for “forceful” actions to stabilize the market. The central bank unveiled a sudden reduction in the amount of cash banks must hold in reserve. A government rescue package is also under consideration, backed by about 2 trillion yuan.

Big investors say that while they have doubts over the feasibility of the rescue package and whether Beijing will really address structural issues related to the fraught real estate market and economy, they also believe only the government can put a floor under this market right now.

“We need the state to come in like a white knight or we may just lose our jobs,” said one fund manager.

Some have quit waiting for a turnaround. A friend working in the tech industry just sold his positions in the most recent rebound for the sake of his mental health.

“It feels liberating when you don’t have to stare at those losses anymore,” he said. “I just regret that last year I could have bought a Canada Goose coat, but I put the money into the stock market thinking that I was buying the bottom. Now, I have to suffer this winter.”

So just what does the future hold for China’s besieged stock market, and what does it mean for the rest of the world? We drill down:

Why is investor sentiment so bad?

The struggling equity market is a reflection of anxiety about the nation’s economic slowdown — and the ability of the Chinese government to steer the nation out of a deflationary trap, resolve the property crisis and rekindle the private sector’s entrepreneurial spirits.

“The stock market decline over the past year is clearly a judgment of the Chinese economy,” said Christopher Beddor, deputy China research director at Gavekal Dragonomics, the China research arm of the consultancy based in Hong Kong.

A loss of confidence among many foreign investors is also a key factor.

Chua Soon Hock — who announced this week he will be shutting down his $330 million Asia Genesis Macro Fund after wrong-way bets on China and Japan — pinned some of his troubles on recent policy inaction. He cited the central bank’s decision this month not to cut policy rates.

How is this slump different from the 2015 meltdown?

When the nation’s stock bubble burst in 2015, authorities allowed China Securities Finance Corp. — its main stabilization vehicle — to borrow as much as 3 trillion yuan worth of funds to buy shares directly.

The purchases kept the market range-bound, though prices only started to recover in mid-2016 when the economy began to improve.

Massive stimulus was a factor, too. The government provided over 3 trillion yuan for the demolition of old apartment buildings and the construction and sale of new ones.

Policymakers also cut interest rates steeply, spurring consumer spending and business investment. Official data put GDP growth for 2015 at 7%.

This time, authorities have shown a willingness to intervene to support the market. But they’ve also clearly indicated they don’t want to resort again to debt-fueled stimulus to drive growth in the property sector and the broader economy.

After all, even though deflationary pressures and the property crisis continue to loom over the country, GDP growth last year still came in line with an official target of around 5%.

What’s the rationale for buying now?

Cheap valuations. The MSCI China Index has never been this inexpensive versus the S&P 500 gauge based on forward earnings estimates.

The market capitalization of the US stock market is now $38 trillion greater than that of Hong Kong and China put together, a fresh record, according to data compiled by Bloomberg.

According to some investors, China’s battered equity market now offers the best value in the world.

“The Chinese stock market is undervalued against cash, Chinese bonds, gold, and other world stock markets — and it is in a state of total panic,” said Charles Gave, Gavekal’s co-founder.

Bridgewater Associates also cited attractive valuations in telling investors it was “moderately bullish” on Chinese stocks, a call made days before the latest stock meltdown.

Cheap valuations may have been a factor in why Alibaba co-founder Jack Ma bought shares of his own company for the first time in eight years.

He purchased about $50 million of stock last quarter, a person familiar with the situation said. Chairman Joseph Tsai separately bought about $150 million of shares in his first such purchase since 2017.

What else may be needed?

There’s been a lot of focus on monetary easing this month, but some economists are focusing more on fiscal policy right now, since those measures can increase demand.

The nation’s finance minister earlier this month said government spending will rise this year, add to other pledges from top Chinese officials who have stressed the need to strengthen fiscal support.

The government is already considering the issuance of $139 billion worth of new debt under a special sovereign bond plan, Bloomberg has reported. That would not only support spending on infrastructure and other activity, but also help create a more sustainable government borrowing model to spur growth.

Also key to easing distrust: Improving the landscape for private companies — including by offering better protection over property rights — and introducing policies to allow the market to take a bigger role in resource allocation.

“The road to regaining confidence and achieving a sustained stock market rebound will likely be gradual and require consistent efforts from the Chinese authorities,” said Manish Bhargava, a fund manager at Straits Investment Holdings in Singapore.

Written by: — With assistance from Allen K Wan, Yujing Liu, Abhishek Vishnoi, and John Cheng @Bloomberg

The post “Next China: Stock Market Meltdown” first appeared on Bloomberg

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