No end in sight for China’s vulnerable CSI 100 plunges

The multi-trillion dollar meltdown in China is continuing as Beijing struggles to solve the escalating situation. The CSI 100 index, which tracks some of the biggest Chinese companies, is hovering at its lowest point since October 2016. It has melted down by more than 50% from its highest point in February 2021.

China stocks slump continues

The CSI 100 index is not alone. In Hong Kong, the Hang Seng index has plunged to H$ 15,510, its lowest level since October 2022. Similarly, the Shanghai Composite and the CSE 1000 indices have all crashed, leading to over $7 trillion in losses. And analysts warn that the situation could continue in the coming months.

Beijing and private companies in the country have attempted to prevent further bleeding in the market. For example, Citic Securities, the biggest broker in the country, has prevented shorting some Chinese companies. Shorting allows people to bet that an asset’s price will drop over time.

Beijing has also announced several actions to prevent the sell-off. For example, the government is considering setting a fund to acquire some stocks. In a statement on Monday, a Chinese academic recommended that Beijing should set up a $1.4 trillion stock stabilisation fund to prevent the meltdown.

Further, regulators have cracked down on analysts who are delivering bad news on the economy and the stock market. Just a few months ago, China announced that it would pause publishing the youth unemployment rate figure. It resumed releasing the report in January.

It is unclear whether these actions will save the tumbling CSI 100 index. For one, many Chinese investors have dumped stocks in favour of funds that track American stocks. Indeed, some of these funds are now trading at a significant premium vs NAV.

Additionally, many Chinese investors have moved from stocks to gold, which many see as a safe haven in times of risks. This trend partially explains why the price of gold has constantly remained above $2,000 in the past few months.

The worst thing that is happening in China is that local and foreign investors have lost confidence in the market. As a result, many foreigners have pulled their money from the market and moved to other markets like in India and Japan, where stocks are surging, 

All this is in line with what some analysts have cautioned about China. One of the most forceful analyst has been Kyle Bass, a hedge fund manager who has cautioned that China’s economy and banking sector were at a significant risk.

CSI 100 index forecast

CSI chart by TradingView

The weekly chart shows that the CSI 100 index has been in a strong freefall in the past few months. Most recently, the index plunged below the key support at CNY3,106, its lowest swing on December 31st, 2018. 

CSI 100 remains below all moving averages, signaling that bears are in control. Therefore, the outlook for the index is bearish, with the next target to watch being at CNY 2,600.