There are some very nervous investors in China and Hong Kong after stockmarkets saw big losses on Monday in the wake of President Xi Jinping’s tightening of total control over China, its people and businesses at last week’s 20th Communist Party Congress.
The Hong Kong stockmarket suffered its biggest fall in 14 years with the Hang Seng Index losing more than 6% and pushing the loss so far this year to close to 35%.
The nervousness was confined to China and Hong Kong markets as European and especially US markets rose strongly.
Mainland Chinese markets were also hit by losses of just under 3% for the key CSI 300 index which covers blue chips from the Shanghai and Shenzhen markets. It’s down more than 23% this year and looking to go lower as fears rise nervous foreign investors will start selling and exit the country.
Hong Kong fell further because it has already been slammed this year by the continuing crackdown on business and social freedoms which has already seen tens of thousands of people emigrate and tens of billions of dollars in capital leave the territory.
Now Xi’s total control and expelling economic moderates and other officials well known to western investors is setting off more fears about the safety of investments in markets in China and in Hong Kong.
Xi’s total control “makes it unlikely that anyone would challenge any “policy mistakes” that Xi makes which could hamper growth of the tech sector, Xin Sun, senior lecturer in Chinese and East Asian business at King’s College London told CNBC.
“Now that the new Politburo standing committee is packed with Xi’s own picks and those in rival factions … were all out, it becomes clear that no other political elite dares to challenge his policy mistakes or even deviate however slightly from his preferred policy agenda, which of course over the past few years has focused on favouring the state sector at the expense of the private one,” Sun told CNBC via email.
“As a result, it is unlikely for these policies to be reversed or corrected, leading to an extremely gloomy economic outlook,” he added
Analysts pointed out that the GDP and production data that both surprised on the upside were made to look better by the Covid outbreaks a year ago and the power rationing and blackouts which were widespread a year ago as well.
Markets in Japan and Australia rose on Monday after Wall Street’s bounce on Friday but that rebound had no impact in China and Hong Kong. Australia’s ASX 200 was up 1.54% and the Nikkei in Tokyo was up 0.3%.
The ASX will rise again on Tuesday after Wall Street’s strong gain on Monday but investors here will keep a wary eye on what’s happening in China and Hong Kong – these are now financial hot spots.
Shares in tech stocks like Tencent, Baidu and Alibaba lost heavily on Monday, registering double digit losses in Hong Kong and in trading on Wall Street where falls of 11% to more than 12% were recorded.
Some analysts are now worried that the next few months will see a surge in selling as worried foreign investors still invested in both markets sell and move their money offshore.
China’s yuan rate was around 7.26 to the US dollar on Monday, the lowest since the GFC and analysts say this rate should be watched closely because if foreigners started quitting China they will sell yuan for dollars or other currencies. But they would not be surprised to see the Xi government try and restrict that if the selling of the yuan becomes noticeable.
