(Bloomberg) — Chinese stocks slumped on their return from the Golden Week holiday, hurt by Sino-American tensions and bleak holiday-spending data that deepened concerns about an economic recovery amid rising Covid cases.
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The benchmark CSI 300 Index fell 2.2% to close at its lowest since April 2020, led by losses in tech and consumer staples. That’s the biggest post-Golden Week tumble for the benchmark since 2018, when the China-US trade war was at its height.
Grim reality faced mainland traders on their return, with trends last week showing a sharp slide in holiday spending, a rebound in virus cases and no respite from the property crisis. Fresh tech export controls by the US added to the gloom by darkening the growth prospects of China’s semiconductor and other advanced industries.
With little conviction of a market bottom, investors are reluctant to build positions ahead of the Communist Party congress on Oct. 16, where leadership will be confirmed and key policies unveiled.
“A slew of weak macro-economic data that China has released shows that there is very limited room for an economic rebound in the short term, which is hard to provide support for earnings and market confidence,” said Shen Meng, a director at investment bank Chanson & Co in Beijing. Rising bets for a 75-basis point Fed hike in November are also hurting sentiment in today’s onshore market, he said.
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Shares of chip and electronics makers tumbled following Washington’s announcement of new restrictions on China’s access to US semiconductor technology. The moves are the Biden administration’s most aggressive yet as it tries to stop China from developing technological capabilities it sees as a threat.
The Hang Seng China Enterprises Index of Chinese stocks in Hong Kong slid more than 3%, while a gauge of tech shares listed in the city plunged 4%. The onshore yuan reversed earlier gains to weaken against the dollar.
“China is still very much under Covid’s shadow and headwinds from the US,” said Steven Leung, executive director at Uob Kay Hian (Hong Kong) Ltd. “All eyes are on the 20th party congress. Politically, investors are focusing on who will be the new premier and what that means for economic policies.”
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Party Congress
The CSI 300 has now fallen more than 24% in 2022, heading for its first back-to-back annual declines in a decade. Stocks have continued to be sold off as traders see any shift away from Covid Zero or massive stimulus as unlikely at the upcoming leadership gathering.
“We’re very unlikely to see any kind of big bang easing, but a gradual easing of approach over a matter of months, which leads to a pickup in growth from really very low levels now,” Jonathan Garner, chief Asia and emerging markets strategist at Morgan Stanley, said in a Bloomberg TV interview.
Meanwhile, bleak tourism and entertainment spending data for the week-long holiday was another proof that consumer demand in China continues to weaken in the face of Beijing’s Covid curbs.
Tourism revenue declined 26% to 287 billion yuan ($40.3 billion) over the week-long holiday from a year ago. Compared with pre-pandemic levels in 2019, revenue was down nearly 56%. Roughly 422 million trips were taken, down 18% from last year and 39% from 2019 levels.
Hopes of a strong post-holiday gain for Chinese stocks were also dented after Friday’s solid US jobs figures sent shares tumbling again on bets for aggressive Federal Reserve rate hikes. The NASDAQ Golden Dragon China Index slumped more than 4% on Friday, wiping out all its gains for the week that onshore traders were away.
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Valuations are in China are extremely cheap,” Garner said, adding that in terms of the actual performance of the market going forward, a lot will hinge on “how we come out of the party congress.”
On the currency market, the onshore yuan traded 0.3% weaker at 7.1416 per dollar as of 4:10 p.m. local time, erasing earlier gains. The offshore yuan also gave up its strength to weaken 0.2%.
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Read More:Grim Reality Greets China Traders as Stocks Slide After Holiday
2022-10-10 03:00:00
