Hong Kong stocks drop because Xi’s appointments make people worry about the economy, and the yuan gets weaker.
Hong Kong On Monday, Hong Kong stocks fell to their lowest levels in 13 years, and the onshore yuan fell to its lowest level in 15 years. This happened after Xi Jinping’s new leadership team made people worry that economic growth would be sacrificed for policies that are based on ideology.
Early in the afternoon, the Hang Seng index fell by 5%, reaching levels last seen during the 2008-2009 global financial crisis.
Shares of tech giants Alibaba (NYSE:BABA) Group Holding Ltd and Tencent Holdings (OTC:TCEHY) Ltd that are traded in Hong Kong fell 10% and 8%, respectively, bringing the Hang Seng Tech Index to a record low of 7%. Chinese developers that are traded in Hong Kong fell by 9% to new lows.
Under Xi, there will be a lot more rules for the tech and real estate industries.
On Sunday, Xi won a third term as leader, which broke with the past. He also introduced the new Politburo Standing Committee, which is full of loyalists.
Ales Koutny, the emerging markets portfolio manager at Janus Henderson Investors, said that the appointments show that China is moving from economic pragmatism to political ideology.
Related: Tencent weighs on Hong Kong’s stock market as a result of Japan’s positive GDP growth.
“The message is clear: COVID Zero lockdowns, the shared prosperity agenda, and sectorial crackdowns are not going away,” he said, adding that he thought these risks would limit China’s annual economic growth to just 2–3%.
China’s gross domestic product (GDP) rose 3.9% year-over-year from July to September, according to official data released on Monday. This was a faster rebound than investors had expected, but it wasn’t enough to make them happy.
FOREIGN OUTFLOWS
Stocks fell less on mainland markets, which are less affected by selling by foreigners. This was helped by a rise in Chinese defence stocks, as investors bet that geopolitical tensions, especially over Taiwan, would get worse.
The Shanghai Composite Index was down 1.4% and the blue-chip CSI300 index was down 2.3%.
The value of the onshore yuan fell to its lowest point in 15 years. The offshore yuan, which started to be traded in 2011, fell to as low as 7.2790 per dollar, which is close to its all-time low.
On Monday morning, about $1.3 billion was taken out of the China-Hong Kong Stock Connect, which is a cross-border market.
“The short-term negative factor is still China’s very strict COVID policies, which have hurt the confidence of foreign investors in China,” said Yuan Yuwei, a fund manager at the hedge fund firm Water Wisdom Asset Management.
China’s zero-COVID policy, which aims to stop all outbreaks and has led to frequent lockdowns, has hurt many industries, including tourism, leisure, and hotel and food service.
Common Prosperity
Xi reaffirmed his Common Prosperity plan at the 20th Congress of the Communist Party. He promised to make income more evenly distributed and “standardise wealth accumulation mechanisms.”
He also put a lot of emphasis on national security, saying that China should make sure it has enough supply chains, grains, and energy, and work toward becoming technologically independent.
The Communist Party’s constitution was changed to include the phrase “developing fighting spirit and strengthening fighting ability.” It also included, for the first time, a call to oppose and stop those who want Taiwan to be independent.
When investors sold off internet companies and real estate developers, some of their money went into chipmakers, companies that make high-end equipment, and defence stocks.
Related: Stocks in China and Hong Kong drop because of fears about COVID.
Minyue Liu, a Greater China investment expert at BNP Paribas (OTC:BQQY) Asset Management, said that her portfolio has less exposure to stocks that are vulnerable to rising geopolitical risks and more exposure to stocks related to tech innovation, industrial upgrades, and energy transition.
Some investors aren’t as worried. They say that China’s new leaders know how important economic growth is.
(Hong Kong). Mark Dong, general manager of Minority Asset Management, said, “I think there’s a growing consensus among policymakers that one of the most important things should be to grow the economy in a way that’s good for everyone” (Hong Kong).
$1 is worth 7.2535 Chinese yuan.
