Chinese stocks struggle as govt. tries to stabilize markets

China's stocks have endured serious declines, with the median stock down over 20% amid government missteps in stabilizing markets. Beijing has been pursuing a piecemeal strategy to inject stimulus into select sectors like real estate to prop up growth.

Yahoo Finance's Jared Blikre breaks down the details.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith

Video Transcript

SEANA SMITH: We've seen about $7 trillion erased in values of equities in China and Hong Kong since their peaks in early 2021. Jared Blikre has a closer look at some of the moves that we're seeing. Jared.

JARED BLIKRE: Blame the short sellers there. That is where we are in this playbook. And we're seeing the Chinese Securities Regulatory Commission come down in quite a hard way on not only short sellers but also sellers that are engaged in a market-neutral strategy. So that's long some, short some.

At the end of the day, all this means is the Chinese government has lost complete control over their stock market. Now we are seeing some reaction to the upside here. Not a lot, but we've seen this before. But if you take into totality of the year to date, and these are the members of the NASDAQ Golden Dragon China Index, we're seeing some serious losses here.

I'll sort by performance. And you can see the middle stock here, the median stock is actually down 20% or more. And if I go back one year, it gets worse. You can see the median stock down about 43%, 44%, 45%.

So almost half of the value wiped off for the median stock here. Now what can the Chinese government do going forward? Not a whole lot. They've been engaged in a piecemeal strategy trying to target specific areas of the economy. And that includes real estate.

It also includes the stock market, but it has been failing. And we can see that evidenced by these numbers here. The real problem for the Chinese government is that if they stimulate too much, their currency gets devalued. And that's what they're trying to prevent, because then you get capital outflows, all kinds of negative knock-on effects then.

But here's the US dollar versus the Chinese yuan. If it's going higher, that means the yuan is weakening. And it has been weakening. And by the way, those are multi-year highs up there. Let me put a max chart in.

These highs are what we're up against here. And the thinking is that if the market were to go higher, the yuan weakening, that would only accelerate to the upside. So that's what the Chinese government is trying to prevent. But if you want to see any inkling of how much China is a drag on emerging markets, just look over the last three months.

Here is EEM. This is iShares E.M. ETF versus iShares E.M. X-China. X-China is up 7.6%, still underperforming the S&P 500 of 13%. But nevertheless, there are some gains out there, but you've got to remove China from the equation.