This is a setback for Wu Qing, chairman of the China Securities Regulatory Commission (CSRC), who has introduced a series of measures since taking office in February, from promises to improve the quality of listed companies to crackdowns on short selling. After a brief rebound on the back of this government support, investors are now fleeing, worried about the outlook for economic growth and corporate profits.

“The Chinese markets remain very frustrating for investors,” said Gary Dugan, CEO of The Global CIO Office in Dubai, which provides services to family offices, asset managers and ultra-high-net-worth individuals. “Investors are looking to the government for concrete and comprehensive action. The market needs action that can stimulate growth in the near future. If the economy is effectively stimulated, the upside in the market could be significant.”

Instead, the Chinese central bank lowered the key interest rate and the key interest rate for longer-term loans following the two meetings. This disappointed stock market participants and triggered a flight to safe investments.

“While the Politburo communiqué acknowledged economic lethargy and promised measures to address the weakness, there were no new concrete measures,” said Ronald Temple, chief market strategist at Lazard Asset Management. “While the Politburo stressed the need to address housing problems, it did not offer any new meaningful measures to absorb the oversupply of housing or to stimulate consumption in the wider economy.”

Temple said he was retracting his claim earlier this year that China’s growth had bottomed out, adding: “China will likely continue to drag down global growth in 2024 and 2025.”

The CSI 300 index is now about 10 percent below its yearly high on May 20, and combined daily trading values ​​on the Shanghai and Shenzhen exchanges fell to 472.9 billion yuan ($66.1 billion) last week, the lowest since May 2020 and well below the daily average of 589 billion yuan this month and 790 billion yuan this year.

Even the CSRC’s most drastic measures have failed to revive confidence. A month ago, the regulator suspended the securities lending business of state-backed margin trading firm China Securities Finance, which lends shares to short sellers. That has brought short selling to a virtual halt and sent the outstanding value to a four-year low as short sellers rushed to unwind trades to avoid the crackdown.

China’s opaque reshuffle of senior financial officials and the ongoing purge of the securities industry have also unsettled investors and left them guessing about the country’s political intentions.

Some optimists argue that downside risk is limited and that stocks are attractive compared to bonds, which are currently offering record low yields.

“In terms of valuation, Hong Kong China equities are currently trading at the lower end of their historical range, which could present attractive entry points for longer-term investors,” said William Fong, head of Hong Kong China equities at Baring Asset Management in Hong Kong. “As the economy gradually normalizes, we find attractively valued, strong structural growth opportunities from a bottom-up perspective.”

Infrastructure, healthcare and technology stocks could perform better as they benefit from the country’s strategies to pursue sustainable growth, technological innovation and environmental awareness, he said.

Meng Lei, a strategist at UBS Group, said China’s insurance companies, which have total assets of more than 30 trillion yuan, would gradually shift to stocks as the industry’s investment returns come under pressure from rapidly falling bond yields. The yield on China’s 10-year government bond fell to an all-time low of 2.124 percent on August 2.

“Insurance companies’ capital inflows (into stocks) will not happen overnight,” Meng said. “They will build up their positions gradually, depending on changes in fundamentals and the recovery in earnings.”

According to Bloomberg data, the CSI 300 index is currently valued at 11.6 times this year’s expected earnings, compared with a multiple of 23.2 for the S&P 500 index and 21.2 for the Nikkei 225.

Despite this advantage, investors continue to be careful not to fall into the so-called valuation trap – that is, cheaper valuations offset by lower corporate profits.

For now, investors are focusing on asset classes other than stocks. Some are betting on a continuation of the record rally in the bond market, despite the central bank’s repeated warnings of the potential risk of low yields, which could lead to huge investment losses if growth picks up. They argue that the deflationary trend in producer prices will trigger further rate cuts to boost demand for debt. China’s factory prices fell for the 22nd consecutive month in July, while consumer inflation remained below 1 percent for the 17th consecutive month.

A China Asset Management ETF linked to the Nikkei 225 traded at a record 21 percent premium to its net asset value at one point this year, while the premium on the company’s ETF tracking the S&P 500 index hit an all-time high of 18 percent, according to Bloomberg data, underscoring robust demand in the secondary market.

In addition to these options, wealthy Chinese investors have also turned their attention to a niche segment of the country’s struggling real estate market: parking their money in luxury properties in major cities, expecting that limited supply will protect their wealth.

“If you are really looking for a safe haven for your capital now, luxury properties in major cities like Shanghai should be your best choice,” said Yan Yuejin, vice president of the E-house China Real Estate Research and Development Institute in Shanghai. “No matter how property prices fluctuate, these premium properties are rare and can meet the demand for wealth preservation and growth.”

Foreign investors are holding back for the time being as there are still no signs of a recovery in stock prices.

“Nobody has China and Hong Kong (stocks) on their radar right now,” said Brook McConnell, president of South Ocean Management.

“There are slow improvements, but not enough to get anyone excited. The patient is still lying motionless on the bed. The markets need more from Beijing.”