Chinese stocks plunged on Monday, with the benchmark Shanghai Composite index falling 2.0% and Hong Kong’s Hang Seng index sinking to its lowest level since November 2022. The selloff comes amid a series of disappointing economic data releases and limited stimulus measures from China’s central bank.
Key Developments
- Hong Kong’s Hang Seng index fell 3.7% to its lowest close since November 2022
- The Shanghai Composite index dropped 2.0%, falling for a third straight session
- Losses were broad-based, with only 3 stocks on the 50-member Hang Seng index ending higher
- Real estate and technology stocks were among the worst performers
- The rout follows weaker-than-expected GDP growth and soft December retail sales data from China
Hang Seng Index Performance - Past 3 Months
| Date | Close | % Change |
|-|-|-|
| October 17, 2024 | 21,221.34 | -- |
| November 30, 2024 | 18,571.48 | -12.5% |
| January 20, 2024 | 15,342.28 | -17.4% |
Disappointing Data
China reported its GDP expanded by only 2.9% in 2022, badly missing forecasts for a 3.2% increase. December retail sales also disappointed, with growth slowing to just 1.8%.
The gloomy economic readings have exacerbated existing worries over China’s property market crisis and rigid COVID restrictions.
“The abysmal economic data explains why Chinese equities tumbled…It shows the economy slowed alarmingly toward the end of 2022,” said Stephen Innes of SPI Asset Management.
With policy support still lacking, analysts see limited catalysts for a rebound. “Beijing’s piecemeal support is unlikely to put a floor under both markets and economic activity just yet,” said National Australia Bank economist Taylor Nugent.
Rate Cuts Seem Less Likely
The lackluster data have also dampened hopes for imminent rate cuts by China’s central bank. The People’s Bank of China kept its key interest rates unchanged on Monday, suggesting a cautious approach even as the economy slows.
“The weak Chinese data has hit global risk sentiment while also lowering the chance of early policy easing by the PBOC,” said currency analyst Jeffrey Halley.
Julian Evans-Pritchard at Capital Economics cautioned stimulus measures may have diminished impact given China’s strict COVID stance. “The benefits of policy easing are dampened by mobility restrictions and weak confidence related to the zero-COVID policy,” he wrote.
Property Market Remains in Focus
China’s real estate sector was again at the heart of the stock market decline. An index of mainland property developers sank over 6% to a new 15-month trough. Heavyweight Country Garden plunged more than 10%.
“The fundamental factor weighing down the mainland market remains the unfinished business in property,” said Kenny Ng at Everbright Sun Hung Kai Securities.
There are fears China Evergrande Group could soon default on debt obligations. The troubled developer’s shares crashed 14% to an all-time low on Monday.
Global Stocks Feel the Impact
Stocks across Asia registered mild losses following the downbeat China data. Japan’s Nikkei edged down while South Korea’s Kospi was fractionally lower.
Indian stocks followed other Asian markets into the red, with the Nifty 50 index dropping over half a percent. “Growth concerns in China coupled with caution ahead of this week’s Federal Reserve meeting could induce volatility in markets across the globe,” said Prashanth Tapse of Mehta Equities.
In currency trading, the U.S. Dollar held steady near a one-month peak as fears over a slowing Chinese economy curbed investors’ risk appetite across financial markets.
Outlook Remains Gloomy with No Quick Fix
With China doggedly adhering to its zero-COVID strategy, analysts think a significant rebound in activity looks improbable in the near term.
“Markets will likely remain under pressure until there is clarity on how policymakers plan to balance COVID restrictions against supporting economic growth,” said Chen Jiahe of Cinda Securities.
Until COVID policies are relaxed and property market stresses ease markedly, economists believe China’s economy could lose more momentum.
“There is a growing risk of both property and COVID ‘waves’ continuing to erode growth,” said analysts at Nomura.
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