Stocks in Hong Kong had their worst day since the 2008 global financial crisis, just a day after Chinese leader Xi Jinping secured his iron grip on power at a major political meeting.
Horrified by the outcome of the Communist Party reshuffle, foreign investors dumped Chinese stocks and the yuan despite stronger-than-expected GDP data. They worry that Xi’s strong grip on power will continue Beijing’s current policies and further affect the economy.
Hong Kong’s Hang Seng Index (HSI) fell 6.4% on Monday, posting its biggest daily drop since November 2008. The index closed at its lowest level since April 2009.
The Chinese yuan weakened sharply, hitting a 14-year low against the US dollar in the internal market. In the offshore market, where it can trade more freely, the currency fell 0.8%, hovering near its weakest level ever, even as China’s economy grew 3.9% in the third quarter of last year, according to the National Bureau of Statistics. . Economists polled by Reuters had forecast growth of 3.4 percent.
The massive sale came a day after the ruling Communist Party unveiled its new leadership for the next five years. In addition to securing an unprecedented third term as party chief, Xi has mobilized his new leadership team with loyal loyalists.
A number of top officials who supported market reforms and an opening of the economy were missing from the new top team, raising concerns about the country’s future direction and its relations with the United States. Among those removed were Prime Minister Li Keqiang, Vice Premier Liu He and Central Bank Governor Yi Gang.
“The cabinet reshuffle appears to have scared foreign investors off their Chinese investment, leading to a massive sell-off in Hong Kong-listed Chinese stocks,” said Ken Cheung, chief Asian forex analyst at Mizuho Bank.
Gross domestic product data posted a rebound from a 0.4% increase in the second quarter, when the Chinese economy was hit by widespread Covid-19 lockdowns. Shanghai, the country’s financial hub and major world trade hub, was closed for two months in April and May. But the growth rate is still below the official annual target set by the government earlier this year.
“The outlook remains bleak,” Julian Evans-Pritchard, chief China economist at Capital Economics, said in a research report on Monday.
He added, “There is no possibility that China will lift its policy of non-proliferation of coronavirus in the near future, and we do not expect any meaningful relaxation before 2024.”
He said that along with further weakness in the global economy and continued slack in Chinese real estate, all headwinds will continue to pressure the Chinese economy.
Evans-Pritchard predicted that China’s official GDP would grow by just 2.5% this year and by 3.5% in 2023.
The GDP data was initially scheduled to be published on Monday, October 18th during the Chinese Communist Party Congress, but was postponed without explanation.
Cheung said the prospect of escalating policies such as Zero Covid, which has led to sweeping lockdowns to contain the virus, and “shared prosperity” – Xi’s attempt to redistribute wealth – is worrying.
“Through the Politburo Standing Committee made up of President Xi’s close allies, market participants read out the implications of Xi’s consolidation of power and policy continuity,” he added.
Mitul Kotecha, head of emerging markets strategy at TD Securities, also noted that the disappearance of pro-reform officials from the new leadership bodes well for the future of China’s private sector.
“The departure of officials and sensible pro-stimulus reformers from the Politburo Standing Committee and the replacement of Xi’s allies indicates that ‘common prosperity’ will be the dominant motive for officials,” Kotica said.
Under the banner of the “Shared Prosperity” campaign, Beijing launched a sweeping crackdown on the country’s private businesses, shaking almost every industry to its core.
“The [market] The reaction, in our view, is in line with the lower odds of major stimulus or changes to zero-Covid policy. Overall, the prospects for re-accelerating growth are limited, Kotica said.
In China’s tightly controlled domestic market, the Shanghai Composite Index is down 2%. The Shenzhen Technology Heavy Composite Index lost 2.1%.
The Hang Seng Tech Index, which tracks the 30 largest listed tech companies in Hong Kong, fell 9.7%.
Shares of Alibaba (BABA) and Tencent (TCEHY) – the crown jewels of China’s tech sector – fell more than 11%, wiping out a total of $54 billion from the value of the stock market.
The sale extended to the United States as well. Shares of Alibaba and several other leading Chinese stocks traded in New York, such as EV companies Nio (NIO), Xpeng and Alibaba competitors JD.com (JD), Pinduoduo (PDD) and search engine Baidu (BIDU), fell sharply. Thursday afternoon.
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