1. China Stocks get Hammered as Investors Digest Xi’s Grip on Power
- Chinese equities continue to get hammered on Tuesday as investors digested the effect of Chinese President Xi Jinping’s leadership changes that would give him unbridled power.
- Traders remained unsettled by the prospect of policies under President Xi Jinping’s third term that would undermine the capitalist reforms undertaken since Deng Xiaoping.
Even as U.S. and European stocks staged an astounding rebound to start the week, Chinese equities continue to get hammered on Tuesday as investors digested the effect of Chinese President Xi Jinping’s leadership changes that would give him unbridled power.
Xi has shown scant interest in maintaining the status quo or upholding the principles of engagement that facilitated China’s ascent to become the world’s second largest economy.
In a speech peppered with references to “security” and with limited assurances to the economy or putting growth as a priority, there is little evidence that Xi intends to loosen up on his zero-Covid policies or reflate the moribund real estate and technology sectors.
Now surrounded by a cadre of “yes men,” Xi has almost free rein to implement his socialist vision for China and implement his goal of “common prosperity,” and investors have grown more skittish than ever when it comes to investing in the Middle Kingdom.
The Hang Seng China Enterprises Index extended Monday’s 7.3% plunge that pushed the gauge to the lowest since 2008 and China’s benchmark CSI 300 Index also slipped.
Traders remained unsettled by the prospect of policies under President Xi Jinping’s third term that would undermine the capitalist reforms undertaken since Deng Xiaoping.
China’s yuan continued to tumble to its lowest level since 2007 after the People’s Bank of China loosened its grip on its tightly-controlled currency fixing by setting the rate at a 14-year low.
After record selloff Monday, foreign investors offloaded a net 17.9 billion yuan (US$2.5 billion) of shares in mainland Chinese firms via trading links with Hong Kong.
If the selloff rattled nerves in Beijing, that was not apparent from state media and should provide plenty of food for thought for China bulls, especially as typical sectors that were as good as sure-bets on the Chinese economy, including tech and real estate, lurch rudderless against an increasingly hostile regulatory climate.
Bargain-hunting foreign investors may also be in for a rude shock and could be catching falling knives as China’s economic path looks increasingly uncertain and the market reforms of the past several decades look at risk of unraveling, with a return to prominence of state-owned firms as the center of the Chinese economy.