China GDP: Hong Kong stocks plunge 6% as fears about Xi’s third term trump data

Hong Kong
CNN Business

Hong Kong shares 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.

Foreign investors spooked by the outcome of the Communist Party’s leadership reshuffle pushed down Chinese shares and the yuan, despite the release of stronger-than-expected GDP data. They worry that Xi’s tightening of power will lead to the continuation of Beijing’s existing policies and further damage the economy.

Hong Kong’s benchmark Hang Seng Index (HSI) fell 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 more freely traded offshore market, the currency fell 0.8%, hovering near its weakest level on record, even as China’s economy grew 3.9% in the third quarter from a year earlier, according to the bureau. National Statistics. . Economists polled by Reuters had expected growth of 3.4%.

The sharp sell-off 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 packed his new leadership team with staunch loyalists.

A number of senior officials who have supported market reforms and opening up the economy were absent from the new top team, raising concerns about the future direction of the country and its relationship with the United States. Those sidelined included Premier Li Keqiang, Vice Premier Liu He and central bank governor Yi Gang.

“It appears that the leadership reshuffle spooked foreign investors to offload their Chinese investments, triggering a big sell-off in Hong Kong-listed Chinese stocks,” said Ken Cheung, head of Asia forex strategy at Mizuho Bank.

The GDP data marked an uptick from growth of 0.4% in the second quarter, when China’s economy was hit by widespread Covid lockdowns. Shanghai, the country’s financial center and a major 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 do not expect any meaningful relaxation before 2024,” he added.

Along with a further weakening of the global economy and a continued decline in China’s real estate, all headwinds will continue to put pressure on the Chinese economy, he said.

Evans-Pritchard expected China’s official GDP to grow by just 2.5% this year and 3.5% in 2023.

Monday’s GDP data was originally scheduled to be released on Oct. 18 during the Chinese Communist Party congress, but was postponed without explanation.

The possibility that policies such as zero-Covid, which has resulted in sweeping lockdowns to contain the virus, and “Shared Prosperity” — Xi’s effort to redistribute wealth — could escalate was causing concern, Cheung said.

“With the Politburo Standing Committee composed of close allies of President Xi, market participants read the implications as President Xi’s consolidation of power and policy continuation,” he added.

Mitul Kotecha, head of emerging markets strategy at TD Securities, also noted that the purge of pro-reform officials by the new leadership bodes ill for the future of China’s private sector.

“The removal of perceived pro-stimulus officials and reformers from the Politburo Standing Committee and replacement with Xi allies suggests that ‘Shared Prosperity’ will be the officials’ main thrust,” Kotecha said.

Under the banner of the “Shared Prosperity” campaign, Beijing launched an all-out crackdown on the country’s private enterprise that shook almost every industry to its core.

“The [market] The reaction in our view is consistent with reduced prospects of significant stimulus or changes to the zero-Covid policy. Overall, the prospects for a re-acceleration of growth are limited,” Kotecha said.

In China’s tightly controlled domestic market, the Shanghai Composite Index fell 2%. The technology-heavy Shenzhen Component Index lost 2.1%.

The Hang Seng technology index, which tracks the 30 largest technology firms listed in Hong Kong, fell 9.7%.

Shares of Alibaba ( BABA ) and Tencent ( TCEHY ) — the crown jewels of China’s tech sector — both fell more than 11%, wiping a total of $54 billion off their stock market value.

The sale also spread to the United States. Alibaba shares and several other major Chinese stocks traded in New York, such as EV companies Nio (NIO) and Xpeng, Alibaba rivals (JD) and Pinduoduo (PDD) and search engine Baidu (BIDU) , all fell sharply. Monday.

Correction: An earlier version of this article gave the wrong day when trading in Chinese stocks in New York was down.

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