Chinese stocks rise as officials consider $278B rescue plan

Tue, Jan 23, 2024, 12:54 PM

JULIE HYMAN: And, in fact, China's stocks are higher today. Authorities reportedly considering a package of different measures to stabilize the slumping economy and the markets, specifically. Policy makers according to Bloomberg are seeking about $278 billion to support the markets. And that's as we see a huge gap in between the Chinese markets and the US markets.

Let's bring in Yahoo Finance's Jared Blikre. Some really interesting milestones that we have seen over the past couple of days.

JARED BLIKRE: Yeah.

JULIE HYMAN: India surpassing Hong Kong, for example, in market size and that gap between the US and China widening.

JARED BLIKRE: Yeah. And I think it's also instructive just to think about the US is at record highs in just about all our major indices. China is flirting with global financial crisis lows, depending on which index you look at. But I have the YFi Interactive here. So let's just take a look at some of the visuals here. Now, here's the world map. Here's what's happening today in Hong Kong. We have 2.63%. That's what happened today.

But let me show you what it looks like over the last three years. It's basically from the upper left to the lower right down. This market has been cut in half. And this is actually worse off than the mainland shares. Here's the Shanghai Composite, it's down 23% over a similar period of time.

And just taking a look at inside the global indices. What has happened this year, year to date? There's a bunch of funny symbols on here. These are all indices. But I'm going to make this real simple. In the upper left, we have the Nikkei 225. That's up 9%. Followed by the NASDAQ 100, up 3%. Then we got some other indices. At the very bottom, it's mainly China. And also Korea for that matter, which is highly levered to China.

So the Hang Seng down 9.9%. The Chinese-- the Shanghai Composite down 7%. And a lot of this has to do with the other measures that the Chinese government has had to put in place, which simply haven't worked. Julie, you mentioned this new facility. This is going to be about $278 billion or $2 trillion yuan. And it's offshore, so they're going to be funneling this money through Hong Kong.

But we've seen this chart that I'm showing right now. This is social financing. This is what the Chinese government calls stimulus going back 20 years. This is from the lower left to the upper right. But it just has not had the effect it's had historically, recently.

JULIE HYMAN: Right. And there is some skepticism about this report today, that it's even going to-- even though, yes, we did see a pop in those Chinese stocks, there seems to be some skepticism out there that even if they do enact this stimulus, that it's not going to be sustainable.

JARED BLIKRE: Yes, I think we've seen a lot of this before. This probably falls in the bucket of half measures. Not as bad as the quarter measures that were introduced before. I'm not going to sneeze at 2 trillion yuan. And there's also a domestic fund that's going to be added to it. That should be worth about 300 yuan. But look, we're talking about $300 billion. All that was able to do was goose the Hang Seng by 2% or 3%. That is not a lot. And so I think the people are dubious that this is going to have any effect.

Now, the danger is that all of this spending, which is apparently for naught, which is sending bad money after-- or good money after bad money. Let's go back to the YFi Interactive. I want to show you their budget deficit relative to GDP. This goes back 10 years to 2013, goes through 2023. 3% was the theoretical cap that has now been breached twice to the upside. It's estimated it's going to go up to 5% this year.

At that point, the Chinese government has to worry about losing control of their currency and capital outflows. So they're playing this dangerous game of stimulus versus capital outflows, and so far, they've been losing.

JOSH LIPTON: Yeah, it's interesting to watch these Chinese authorities kind of pull these levers, the financial levers, but also the rhetoric-- watching them sort of they come to the US, right? They go to Davos kind of trying to pound the table saying, we're open for business. See how investors react, though. It'll be interesting. Jared, thanks so much. Appreciate it.

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Chinese stocks rise as officials consider $278B rescue plan

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