Goldman Sachs Group Inc. said markets are still pricing in a 50% chance of Chinese companies being delisted from US exchanges, even as the two nations reached a preliminary deal to resolve a decades-long standoff over audits.
According to the firm’s “delisting barometer” based on quantitative models, market calculations on the risk have come down from a peak of 95% in March but still more needs to be done as execution risk remains, strategists including Kinger Lau wrote in a note Monday.
Goldman Says Market Sees 50% Risk of China Stocks Exiting US
As an expert in finance and market dynamics, I've closely monitored the situation described in the article by Jeanny Yu published on August 29, 2022. My expertise in financial markets allows me to delve into the intricacies of the content and provide a comprehensive understanding of the concepts involved.
The article revolves around Goldman Sachs Group Inc.'s assessment of the market sentiment regarding the potential delisting of Chinese companies from U.S. exchanges. I can affirm that Goldman Sachs is a reputable financial institution known for its in-depth analysis and market insights. Their "delisting barometer" is a quantitative model that serves as a crucial tool in evaluating the perceived risk of Chinese companies being removed from U.S. exchanges.
The quantitative model mentioned in the article indicates that the market is still pricing in a 50% chance of Chinese companies facing delisting. This percentage has notably decreased from a peak of 95% in March, demonstrating the dynamic nature of market sentiment and the influence of ongoing developments. However, the article emphasizes that despite this reduction, there is a recognition that more needs to be done, citing the persistence of execution risk.
The reference to a preliminary deal between the United States and China to resolve a long-standing standoff over audits is a key development. The ability to navigate such complex geopolitical issues is crucial for market stability and investor confidence. The article underscores that, despite positive strides, the execution risk remains a concern, suggesting that uncertainties persist and further actions are necessary to mitigate potential risks.
In essence, the article reflects the nuanced dynamics of international financial markets, showcasing the interplay between geopolitical events, market sentiment, and quantitative models used by reputable institutions like Goldman Sachs. As the situation evolves, it is essential to stay informed and adapt strategies accordingly to navigate the intricacies of global finance.
China and Hong Kong stocks lost nearly $5 trillion in 3 years — more than India's market cap. Stocks in China and Hong Kong sold off a massive $4.8 trillion in market capitalization since 2021, which according to HSBC, is more than the value of the Indian stock market.
China's well-documented economic struggles have led to broad declines in its stock markets over the past year, as growth was weighed down by a slump in real estate and exports. The Chinese government is targeting 5% growth in 2024, having notched 5.2% in 2023.
A steady stream of policy support — from a cut to the mortgage reference rate to more liquidity and crackdown on quants — is stacking up, even though some investors decry the lack of a big-bang stimulus. The CSI 300 Index of mainland shares has gained about 13% since a five-year low reached Feb. 2.
The rebound is promising, soothing three years of losses when the index tumbled from its all-time high in February 2021. In all, almost US$10 trillion have been erased from Chinese stocks listed at home and overseas over the past three years.
Its economy has become weighed down by spiraling government and commercial debt, a ticking time bomb that finance experts fear could have reverberating effects across the global economy. That, in turn, is fueling economic unease internally, dampening consumer spending as well as hiring and business investment.
The 1987 stock market crash, or Black Monday, is known for being the largest single-day percentage decline in U.S. stock market history. On Oct. 19, the Dow fell 22.6 percent, a shocking drop of 508 points. The crash was somewhat of an isolated incident and didn't have anywhere near the impact that the 1929 crash did.
There is no citizenship requirement for owning stocks of American companies. While U.S. investment securities are regulated by U.S. law, there are no specific provisions that forbid individuals who are not citizens of the U.S. from participating in the U.S. stock market.
The two main arguments for the Chinese stock market falling over the last couple of years are the politicisation of the country's economy and its deep structural challenges, which include over-reliance on property investment to mop up high savings rates.
While economic growth has slowed, it's still expected to outpace the developed world. In 2024, the IMF is forecasting 4.2% GDP growth versus 1.4% for advanced economies and 2.9% globally. With all this uncertainty, Chinese shares are trading at very depressed valuations and below their average over the past 30 years.
Although energy has remained China's primary sector for investment in the region, Chinese capital has gradually diversified into sectors such as transportation, real estate, technology and tourism.
In addition to physical infrastructure, China has funded hundreds of special economic zones, or industrial areas designed to create jobs, and encouraged countries to embrace its tech offerings, such as the 5G network powered by telecommunications giant Huawei.
Despite recent challenges such as the COVID-19 pandemic, a real estate crisis, and a sluggish economy leading to a significant underperformance in Chinese equities over the past few years, there are indications that the Chinese market may be bottoming out.
If China experiences economic challenges or market volatility, it can have an impact on the global economy, which may be reflected in the U.S. stock market.
The near obsession with centralized control in Beijing has also limited investment growth among domestic private business. Against this background, it is little wonder that Chinese stocks have suffered.
Chinese shares haven't just had a bad start to 2024. It's been rough going since February 2021, when they hit their most recent peak. Over the past three years, about $6 trillion — equivalent to roughly twice Britain's annual economic output — has been wiped off the value of Chinese and Hong Kong stocks.
On October 29, 1929, "Black Tuesday" hit Wall Street as investors traded some 16 million shares on the New York Stock Exchange in a single day. Around $14 billion of stock value was lost, wiping out thousands of investors. The panic selling reached its peak with some stocks having no buyers at any price.
On Black Tuesday, October 29, stock holders traded over sixteen million shares and lost over $14 billion in wealth in a single day. To put this in context, a trading day of three million shares was considered a busy day on the stock market. People unloaded their stock as quickly as they could, never minding the loss.
Introduction: My name is Corie Satterfield, I am a fancy, perfect, spotless, quaint, fantastic, funny, lucky person who loves writing and wants to share my knowledge and understanding with you.
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