Chinese GDP: Hong Kong stocks plunge 6% amid fears over Xi’s third-term Trump data
Hong Kong stocks 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 rally.
Foreign investors spooked by the outcome of the Communist Party leadership reshuffle dumped Chinese stocks and the yuan despite the release of stronger-than-expected GDP data. They fear that Xi’s tightening grip on power will lead to a continuation of Beijing’s existing policies and further dent the economy.
Hong Kong’s benchmark Hang Seng Index (HSI) plunged 6.4% on Monday, marking its biggest daily decline since November 2008. The index closed at its lowest level since April 2009.
The Chinese yuan weakened sharply, hitting a new 14-year low against the US dollar in the onshore market. In the offshore market, where it can trade more freely, the currency fell 0.8%, approaching its lowest level on record, even as China’s economy grew 3.9% in third quarter from a year ago, according to the National Bureau of Statistics. . Economists polled by Reuters had forecast growth of 3.4%.
The strong sell-off came a day after the ruling Communist Party unveiled its new leadership for the next five years. Along with securing an unprecedented third term as party leader, Xi has filled his new leadership team with loyal loyalists.
A number of senior officials who have backed market reforms and opening up the economy were absent from the new leadership team, raising concerns about the country’s future direction and its relationship with the United States. Those dismissed included Premier Li Keqiang, Vice Premier Liu He and central bank governor Yi Gang.
“It appears the management reshuffle has caused foreign investors to offload their Chinese investments, prompting strong sales of Hong Kong-listed Chinese stocks,” said Ken Cheung, chief Asian forex strategist at the bank. Mizuho.
GDP data marked a recovery from the 0.4% increase in the second quarter, when China’s economy was battered by widespread Covid lockdowns. Shanghai, the country’s financial center and a global trade hub, was shut down for two months in April and May. But the growth rate was still below the official annual target the government set earlier this year.
“The outlook remains bleak,” Julian Evans-Pritchard, senior China economist for Capital Economics, said in a research report on Monday.
“There is no prospect of China lifting its zero-Covid policy in the near future, and we don’t expect any significant easing until 2024,” he added.
Coupled with a further weakening of the global economy and a continuing slump in China’s real estate, all headwinds will continue to pressure the Chinese economy, he said.
Evans-Pritchard expected China’s official GDP to grow just 2.5% this year and 3.5% in 2023.
Monday’s GDP data was originally due to be released on Oct. 18 at the Chinese Communist Party Congress, but was postponed without explanation.
The possibility that policies such as zero-Covid, which has resulted in broad lockdowns to contain the virus, and “common prosperity” – Xi’s attempt to redistribute wealth – could be scaled up was concerning, Cheung said.
“With the Politburo Standing Committee made up of close allies of President Xi, market participants are reading the implications as President Xi’s consolidation of power and continued policy,” he added.
Mitul Kotecha, head of emerging markets strategy at TD Securities, also pointed out that the disappearance of pro-reform officials from the new leadership bodes ill for the future of China’s private sector.
“The departure of officials and reformers seen as supportive of reviving the Politburo Standing Committee and their replacement by Xi allies suggests that ‘common prosperity’ will be the main push for officials,” Kotecha said.
Under the banner of the “Common Prosperity” campaign, Beijing has launched a massive crackdown on the country’s private enterprise, which has shaken almost every industry.
“The [market] The reaction to our advice is consistent with the diminished prospects for meaningful stimulus or shifts towards zero-Covid policy. Overall, the prospects for a reacceleration of growth are limited,” Kotecha said.
In the tightly controlled domestic market in China, the benchmark Shanghai Composite Index fell 2%. The tech-heavy Shenzhen Components Index lost 2.1%.
The Hang Seng Tech Index, which tracks the 30 largest tech companies listed in Hong Kong, plunged 9.7%.
Shares of Alibaba (BABA) and Tencent (TCEHY) – the crown jewels of China’s tech sector – both fell more than 11%, together wiping $54 billion off their market value.
The sale has also spread to the United States. Shares of Alibaba and several other top Chinese stocks traded in New York, such as electric vehicle companies Nio (NIO) and Xpeng, Alibaba rivals JD.com (JD) and Pinduoduo (PDD) and the Baidu search engine (BIDU), all fell sharply on Monday.
Correction: A previous version of this article gave the wrong day when Chinese stocks trading in New York were down.