Hong Kong index drops 6.36%, worst session since 2008 as Xi Jinping consolidates power in China

Hong Kong shares tumbled to 13-year lows and the onshore yuan plunged to its weakest level in nearly 15 years on Monday as global investors dumped Chinese assets after Xi Jinping’s new leadership team raised fears that growth will be sacrificed for ideology-driven policies. Xi has secured an unprecedented third leadership term.

Hong Kong’s Hang Seng Index fell 6.36%, recording its worst day since the height of the global financial crisis in late 2008.

Amid record outflows, the CSI 300 index, which brings together the largest companies listed in Shanghai and Shenzhen, closed down 2.9%, while the Shanghai index fell 2%.

Hong Kong-listed shares of tech giants Alibaba Group and Tencent Holdings Ltd tumbled 11%, dragging the Hang Seng Tech Index to a record low of 9.7%.

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Both real estate and technology were subject to much greater regulation under President Xi Jinping.

International investors are “entering the capitulation phase” where they “just don’t want to have the exposure,” Andrew McCaffery, global chief investment officer at Fidelity International, told Reuters.

The catalyst for the concern was the Communist Party Congress and the realization that there is not enough economic focus, he said.

Xi secured an unprecedented third term after the week-long congress, and ushered in the new loyalist-filled Politburo Standing Committee.

Four of the seven permanent committee members were replaced, all at least 60 years old.

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Analysts at Goldman Sachs say most of the new appointees worked with Xi in the early stages of their careers. “We observe that new leaders may be more focused on ideological and political issues, while retiring policymakers seem more economic/market oriented,” they said.

They added that for valuations to improve, more clarity would be needed on Covid zero policy, stabilizing housing markets and reducing tensions across the US-China.

The committee appointments showed that China is moving “from economic pragmatism to political ideology,” said Ales Koutny, emerging markets portfolio manager at Janus Henderson Investors.

“The message here is clear: maintenance of lockdowns with Covid zero policy, shared prosperity agenda and sectoral restrictions that are going nowhere,” he said.

Thus, both Hong Kong and mainland Chinese stock exchanges have seen sharp declines with the rise of Xi Jinping’s power, with a summit made exclusively of allies.

On the other hand, points out Morgan Stanley, the positive tone about the achievements with the Covid-zero policy does not necessarily represent a direction for the future. The speeches raised concerns that China’s reopening may occur later, given the current market expectation of reopening in the first half of 2023.

However, Covid-zero and its success were mentioned when talking about past achievements – that is, backwards rather than forwards. “While it is true that there is not much visibility into an exit timetable, we think that the reaffirmed commitment to economic development means that a reassessment of the benefits and costs of Covid-zero cannot be put off indefinitely in light of significantly lower income growth. , a sharp rise in youth unemployment and increasing difficulty in maintaining Covid-zero amidst more transmissible variants”, evaluates Morgan.

In any case, Xi Jinping’s greater powers ended up overshadowing the repercussions of China’s economic data.

China’s economy recovered at a faster-than-expected pace in the third quarter, but stringent Covid-19 restrictions, a deepening housing crisis and global recession risks challenge a vigorous revival over the next few years. year.

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Gross domestic product (GDP) in the world’s second-largest economy grew 3.9% in the July-September quarter from a year earlier, official data showed on Monday, above the 3.4% pace forecast. in a Reuters poll of analysts, and accelerating from a 0.4% pace in the second quarter.

Publication of the data was scheduled for October 18, but was postponed until after the Communist Party Congress.

Despite the recovery, the economy is facing challenges on multiple fronts at home and abroad. The Covid zero strategy and China’s Covid zero problems and struggle in its real estate sector exacerbate external pressure from the Ukraine crisis and global slowdown due to rising interest rates to contain inflation.

A Reuters poll projected China’s growth will slow to 3.2% in 2022, far below the official target of around 5.5%, marking one of the worst performances in nearly half a century.

In the quarterly comparison, GDP grew 3.9% in the third quarter, against an expected 3.5% expansion and a 2.6% decline in the previous quarter.

Since late May, authorities have implemented more than 50 economic support measures, seeking to bolster the economy to ease job pressures, even as they downplay the importance of achieving the growth target, which was set in March.

Separate data showed industrial production rose 6.3% in September from a year earlier, beating expectations for a 4.5% gain and up from 4.2% in August.

But retail sales remained weak, rising 2.5%, worse than expectations of 3.3% and the 5.4% expansion in August.

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There was also an increase in the unemployment rate, which stood at 5.5% compared to 5.3% in August.

Check out how the indexes closed:

. In TOKYO, the Nikkei .N225 index rose 0.31% to 26,974 points.

. In HONG KONG, the HANG SENG .HSI index fell 6.36% to 15,180 points.

. In SHANGHAI, the SSEC .SSEC index lost 2.02% to 2,977 points.

. The CSI300 .CSI300 index, which brings together the largest companies listed in SHANGHAI and SHENZHEN, dropped 2.93% to 3,633 points.

. In SEOUL, the KOSPI .KS11 index rose by 1.04% to 2,236 points.

. In TAIWAN, the TAIEX .TWII index rose 0.29% to 12,856 points.

. In SINGAPORE, the STRAITS TIMES .STI index remained closed.

. On SYDNEY, the S&P/ASX 200 .AXJO index advanced 1.54% to 6,779 points.

(with Reuters)

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