Chinese stock exchanges are taking decisive action, urging major mutual funds to restrict stock sales as the nation faces a weakening yuan and volatile stock markets. This move is part of Beijing’s efforts to stabilize the economy before Donald Trump begins his second term as U.S. President.
What Happened: The yuan has fallen to its lowest level in 16 months, while the blue-chip stock index (CSI300) reached its weakest point since September, decreasing by 0.8% on Monday. The index suffered a 5% drop last week, marking its largest weekly loss in over two years. Meetings were held by the Shanghai and Shenzhen stock exchanges with foreign institutions to assure continued market openness, Reuters reported on Monday.
Three sources indicated that the exchanges have instructed at least four large mutual funds to buy more stocks than they sell, starting from the beginning of the year. This directive aims to reduce market volatility amid fears of potential tariffs on Chinese goods by the incoming U.S. administration.
See Also: Apple Rival Huawei, Alibaba And Others Get Boost As China Doles Out Subsidies To Smartphone Buyers
Authorities have implemented various measures to bolster capital markets, including swap and re-lending schemes amounting to 800 billion yuan for stock purchases. The Central Economic Work Conference in December highlighted the stabilization of stock and property markets as a key objective for 2025.
Why It Matters: The recent actions by Chinese exchanges come on the heels of a significant rebound in Chinese stocks in 2024, following a three-year downturn. The CSI 300 index rose by 14.7% last year, while the Shanghai Composite Index increased by 12.8%. The Hang Seng Index in Hong Kong also saw a 17.7% rise, marking its first annual gain in five years. This recovery was attributed to stronger-than-expected policy support from Chinese authorities, including interest rate cuts and funding programs to boost stock buying.
Additionally, China is considering allowing the yuan to weaken significantly in 2025 to counter potential 60% tariffs on Chinese imports by the United States. This potential devaluation represents a major shift in Beijing’s currency strategy amid mounting economic pressures.
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Disclaimer: This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.
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