The Shanghai Composite has dropped 27 percent from its June 12 peak, after a 152 percent surge in the previous 12 months. While state buying has fueled gains over the past two weeks, China’s securities regulator said Friday that the government agency tasked with supporting share prices will reduce purchases as volatility falls.
Long View
For investors with a longer-term horizon, sticking with Chinese shares could prove “very lucrative” because the country’s economic growth is still stronger than many of its peers, according to Gerry Alfonso, a sales trader at Shenwan Hongyuan Group Co. in Shanghai.
“This lack of a clear trend in the market causes overreactions by investors,” he said. “Eventually the market will turn around.”
While they wait for stocks to recover, investors are finding alternatives in Chinese real estate and overseas markets. Data on Tuesday showed home-price gains are spreading, with the average value in 70 cities tracked by the government rising 0.17 percent in July from a month earlier, the third consecutive increase.
The yuan’s retreat to the weakest level since 2011 is increasing the allure of assets denominated in foreign currencies, according to Steve Wang, the chief China economist at Reorient Financial Markets Ltd. in Hong Kong. Yuan positions at China’s central bank and financial institutions fell by the most on record last month, a sign that investors are moving money out of the country.
“China’s capital outflow in July coincided with big investors selling shares,” Wang said. “Small players have been drawn in by government measures to support the market, while wealthy investors cut their stakes.”