(Bloomberg) -- Chinese stock traders are losing enthusiasm over hopes of a rebound, key market data show, as policy stimulus falls short of expectation while the economy remains mired in a Covid Zero trap.
The CSI 300 Index has erased most of its mid-March rally triggered by a sweeping set of policy promises to stabilize markets. The gauge is now just 2.2% above its March 15 close, when a historic rout pushed the benchmark to the lowest since June 2020.
Investors who had expected authorities to ramp up monetary stimulus have since been underwhelmed, with Wednesday’s decision by Chinese banks to keep lending rates unchanged serving as the latest disappointment. Lockdowns in major cities across the country coupled with capital outflow risks as the Federal Reserve hikes rates have also dampened sentiment.
Read: China’s Commitment to Covid-Zero Undermines Support for Market
Here are three charts that highlight investor caution over China’s onshore equities market:
Falling Leverage
The amount of outstanding margin financing dropped for nine consecutive sessions on Tuesday, the longest streak of declines since January. Falling demand for leveraged trade indicates sluggish risk appetite. History suggests stock leverage demand tends to rise alongside a market rebound.
“Matters have taken a turn for the worse with the latest round of the Covid-19 resurgence that has led to lockdowns of key economic hubs,” BofA Securities Inc. strategists led by Ritesh Samadhiya wrote in a note this week. “A significant ramp up in policy easing is paramount in attaining the ‘about 5.5%’ growth target.”
Fleeing Foreigners
Overseas investors are pulling money from mainland shares as lockdowns amplify growth risks and the yuan’s weakness against the dollar falls to multi-month lows. Foreigners offloaded 45 billion yuan ($7 billion) of shares onshore through the stock connect in March, the most in two years. Net outflows amounted to 6 billion yuan so far this month through Wednesday, according to data compiled by Bloomberg.
READ: IMF Says China’s Outflows Show Deepening Divergence With U.S.
Dwindling Trading
Daily turnover on Shanghai and Shenzhen exchanges dipped below 800 billion yuan earlier this week, marking the lowest level since May last year. The slump underscores investor caution as China sticks to its strict Covid Zero approach. Decreasing trading turnover in a down-trending market could indicate a short-term bottom, at least according to past occurrences, though investors say a meaningful rebound is unlikely barring a shift in Covid policy.
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