Researchers are sure
This is how Xi Jinping drives up stock prices
October 18, 2023, 1:48 p.m
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Xi Jingping is not only China’s president, but also a decent stock indicator. At least when he visits companies in the People’s Republic.
China’s president likes to visit schools, infrastructure projects and factories. Xi Jingping is shown surrounded by admiring looks by the state media – and savvy investors may in the future ask themselves whether they shouldn’t buy the shares of the companies that Xi visits.
Researchers from the University of Tokyo have found that these appearances tend to drive up the company’s share price. For their study, which the Economist points out, the scientists used visits by high-ranking Chinese Communist Party officials from 2002 to last year to companies listed on the Shanghai and Shenzhen stock exchanges.
To find out the effect on stock prices, the researchers took a complex approach. They identified the so-called “abnormal returns” of these stocks. The term stands for an effect in finance – it occurs when the return actually achieved is different than the expected return, which was predicted based on a model calculation. The reasons for the deviations are surprising events. This could be, for example, the announcement of a merger, the announcement of a dividend or even interest rate increases.
So the researchers measured the actual returns from investing in stocks of the companies visited and compared them with the returns that would have been expected if the visit had not taken place. They looked at the period from one week before to one week after the visit.
State-owned companies do not benefit
With Xi, the swings were by far the most noticeable. The value climbed to almost 6 percent. For Li Keqiang, long-time prime minister under Xi, the “abnormal return” reached at least 3.5 percent. Xi’s predecessor Hu Jintao and his Prime Minister Wen Jiabao got 2.2 and 1.3 percent.
According to the Economist, the big impact of Xi’s visit could be explained by his policies. Under his leadership, the Chinese government is making much greater efforts to direct investments into specific areas. A visit by Xi can show that it is a company that is one of the winners.
According to the researchers, state-controlled companies do not benefit from this effect – possibly because they are supported by the government anyway. It can be seen in private companies that have a lower status in the Communist Party’s estimation. You should be able to get bank loans more easily after a visit by the president.
The fact that the attention of heads of state increases the stock market value of companies can also be seen outside of China. Scientists at the University of Illinois discovered the phenomenon after visits to companies by US presidents. However, these “abnormal returns” are meager compared to China – on average they were only 0.4 percent.