China Stocks Lose US$52 Billion in Q2

Jul. 28 – Mainland China’s mutual funds have lost RMB351 billion in the second quarter this year, alongside a drop of some 23 percent in the value of China’s A share market over the same period. This represents the third largest quarterly deficit in China’s history.

A combined 652 funds run by 60 Mainland China asset management firms lost 14 percent of their outstanding value from April through June, while the Shanghai Composite Index, the benchmark for the strongest Chinese listed companies, fell 710 points during the period, reported Shanghai-based financial analysis firm Wind Information.

China’s A share market, which is denominated in RMB, is the worst performing market globally this year. Losses have mounted as China’s regulatory authorities have clamped down on monetary lending, however the risk of social unrest caused by declining stock value is also a concern to the government.

“The Chinese government is caught between the devil and the deep blue sea here,” says Chris Devonshire-Ellis of Dezan Shira & Associates. “It holds far too many stocks in state-owned enterprises than it should, and has encouraged the people of China to buy into them through licensed mutual funds. Yet the same government’s monetary policy is driving the value of the stocks down.”

“In the long term it may do China some good to see depressed stock levels as the government may then be politically able to offload additional shares it possesses into private ownership. Yet if the situation deteriorates too much, the public may protest at rising paper asset losses, some of which may be lodged against other assets such as property. The government has a fine balancing act to undertake to keep stock owners happy while at the same time employing a sensible fiscal policy. It is not going to be easy.”