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China stocks tumble as Xi's team fans economic concern; yuan weakens

Economy Oct 24, 2022 05:52AM ET
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2/2 © Reuters. FILE PHOTO: People walk past a screen displaying the Hang Seng stock index at Central district, in Hong Kong, China July 19, 2022. REUTERS/Lam Yik 2/2
 
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By Xie Yu and Summer Zhen

HONG KONG (Reuters) -Hong Kong stocks slid to 13-year lows on Monday and the onshore yuan fell to its weakest in nearly 15 years as global investors dumped Chinese assets after Xi Jinping's new leadership team raised fears growth will be sacrificed for ideology-driven policies.

The Hang Seng index slumped 6.4%, recording its worst day since the depth of the global financial crisis in late 2008. Record foreign outflows via a trading link between the mainland and Hong Kong knocked China's benchmark CSI300 Index down 3%.

Hong Kong-listed shares of tech giants Alibaba (NYSE:BABA) Group and Tencent Holdings (OTC:TCEHY) Ltd both plunged 11%, dragging the Hang Seng Tech Index down 9.7% to a record low. Hong Kong-listed Chinese developers also plummeted 10.8% to record lows.

Both the property and tech sectors have been targeted for far greater regulation under President Xi, who secured a third term at a Communist Party Congress on Sunday.

International investors are "getting into the capitulation phase" where they "just don't want to have the exposure", said Andrew McCaffery, Fidelity International's global chief investment officer, asset management.

The catalyst for the worry was the Communist Party Congress and the perception that there was not enough economic focus, he said.

Xi secured a precedent-breaking third term following the week-long congress, and introduced the new Politburo Standing Committee stacked with loyalists.

The appointments showed China was moving "from economic pragmatism to political ideology", said Ales Koutny, emerging markets portfolio manager at Janus Henderson Investors.

"The message here is clear: COVID Zero lockdowns, shared prosperity agenda and sectorial crackdowns are not going anywhere," he said, adding that he believed these risks would limit China's annual economic growth to 2-3%.

China's gross domestic product (GDP) rose 3.9% in the July-September quarter year-on-year, official data showed on Monday, rebounding at a faster-than-expected pace but that was not enough to cheer investors.

FOREIGN OUTFLOWS

Stocks declines were relatively moderate for mainland markets, which are less vulnerable to foreign selling and were bolstered by a surge in Chinese defence-related stocks as investors bet geopolitical tensions, particularly over Taiwan, would intensify.

Foreign investors sold a net 17.9 billion yuan ($2.47 billion) of Chinese onshore shares via Stock Connect on Monday, the biggest outflow since the scheme was launched in 2014.

China's bluechip CSI300 index lost 2.9%, while the Shanghai Composite Index dropped 2%.

Onshore yuan fell to its weakest level in nearly 15 years. Offshore yuan, in which trade began from 2011, slipped below 7.30 per dollar in late afternoon trading to a record low.

"The short-term negative factor remains China's extremely harsh COVID policies, which have hit foreign investors' confidence toward China," said Yuan Yuwei, fund manager at hedge fund house Water Wisdom Asset Management.

Ravaged by the zero-COVID policy, which seeks to stamp out all outbreaks and has resulted in frequent lockdowns, sectors such as tourism, leisure as well as hotel and catering saw steep declines.

COMMON PROSPERITY

During the Communist Party's 20th Congress, Xi reaffirmed his Common Prosperity drive, vowing to distribute income more fairly, and "standardise wealth accumulation mechanisms".

He also emphasised national security, saying China should secure supply chains, sufficient grains and energy as well as work towards technological self-reliance.

An amendment to the Communist Party's constitution enshrined "developing fighting spirit, strengthening fighting ability", while a call to oppose and deter forces seeking independence for Taiwan was included for the first time.

With investors dumping internet companies and property developers, some of those funds were re-directed into chipmakers, high-end equipment producers and defence stocks.

Minyue Liu, Greater China investment specialist at BNP Paribas (OTC:BNPQY) Asset Management, said that her portfolio has reduced its exposure to stocks vulnerable to an increase in geopolitical risks, favouring instead shares related to tech innovation, industrial upgrades and energy transition.

Fidelity's McCaffery said the panic selling could be overdone.

"You've got to divorce current fear factors of the international investors ... with the reality that's occuring in the Chinese economy," he said, noting that China's efforts to promote strategic industries, increase infrastructure spending, and tackle climate changes created investment opportunities.

($1 = 7.2535 Chinese yuan)

China stocks tumble as Xi's team fans economic concern; yuan weakens
 

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Comments (10)
Roberto Baggio
Roberto82 Oct 25, 2022 12:56AM ET
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Ya right! Hahahahaha…
Joe Rizzuto
Joe Rizzuto Oct 24, 2022 8:32AM ET
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stop investing in ur enemies. china's communist policies of autocratic ruler, government control, subdue the masses by any means necessary, and no respect for property rights on intellectual property is antithesis to american democracy. stop investing in china!!
nils Hullmann
nils Hullmann Oct 24, 2022 6:16AM ET
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will US have the same reaction when creepy joe gets reelected ?...thats way scarier
lup sup
lup sup Oct 24, 2022 6:16AM ET
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Sleepy Joe is done. Next!
David Beckham
David Beckham Oct 24, 2022 3:10AM ET
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If you really want to trade to win money don’t play Hk and china play in america that’s the casino for trader China is not for you if you want to do business in China and earn mo ey it’s not difficult but not the markey
David Beckham
David Beckham Oct 24, 2022 3:07AM ET
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It’s funny that he is the only one fight against corruption and bubble it could not good for the market but he is the only so the jobs but people o lot focus on the market and money I think it’s time to disconnect with westerns since they are totally different.
Steven ML
Steven ML Oct 24, 2022 3:04AM ET
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Tumble??? You mean "crash"?
Martijn WN
Speculeerbeer Oct 24, 2022 2:58AM ET
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Of course I hate Winnie the Pooh, but I think that bloke that said Winnie is aware of the importance of economic growth is right. Besides, we already knew that Winnie is a dangerous dictator, and it was 100% sure that he would secure his 3rd term. So why the panic sale today?
akljsdf askldf
akljsdf askldf Oct 24, 2022 2:58AM ET
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it is the list of his team, if you dun understand the sell-off then you don't understand Chinese politics
Ken Roth
Ken Roth Oct 24, 2022 12:56AM ET
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It seems president XI is bent on destroying the chinese economy with his fixation on control of citizens in the country and covid policies…
Kerry Ditto
Kerry Ditto Oct 24, 2022 12:15AM ET
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Red flag warning from HK, -5% just now. HK action is the global market precursor. Massive stock market crash might have begun.
juan carlos molina
juan carlos molina Oct 24, 2022 12:07AM ET
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and what abot the real state sector?
 
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