Chinese stocks recovery reassures European markets
The Chinese stock market closed in positive territory on Friday night after a troubled trading week.
The Shanghai Composite Index jumped 2% to close at 3,186 points at the end of a week where Chinese market authorities used their circuit breaker twice to prevent the stock market to fall below 7% loss.
The recovery has been attributed by experts to both the suspension of the circuit breaker and the action of the Chinese ‘national team’, a group of state-backed funds tasked with supporting the stock market, which likely started to buy up shares on Friday to boost Chinese retail investors’ confidence.
The news seems to have reassured European markets too, which all opened on mildly positive territory on Friday morning.
After half an hour of trading, the STOXX Europe 600 was trading at 0.54%, the FTSE 100 at 0.70%, the DAX at 0.80% and the CAC at 0.05%, according to Bloomberg TV.
However, the first week of trading of 2016 has managed to wipe $4trn off Bloomberg World Exchange Market Capital index.
According to CNBC reports, “The S&P Global Broad Market Index, which tracks global stock performance, has lost $2.23trn in market value this year.”
Analysts are also sceptical about Beijing’s economic competence and the sustainability of positive performance in the long run.
“Whilst this week’s volatility in the Chinese market has largely been led by concerns about the circuit breaker mechanism, there remains underlying issues with the Chinese economy which investors are increasingly wary of,” said Sanjiv Shah, Chief Investment Officer at Sun Global Investments.
“The Government’s ability to shore up confidence will ultimately depend on whether the government can manage to rebalance the economy and stabilise the economic growth rate while reducing the capital outflows which have grown in recent months.
“The current trends on these factors are clearly negative and cannot be reversed in the short term,” he concluded.
Marc Ostwald of ADM Investor Services told the Guardian: “As we have argued before, China’s authorities have clearly bitten far more than they can chew in their markets and economy reform efforts, with a clear sense that they are at best fumbling in the dark emerging.”