Hong Kong stocks fall after Xi appointments stoke economic fears; the yuan is weakening

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HONG KONG/SHANGHAI — Hong Kong stocks fell on Monday and the yuan weakened against the dollar after the new composition of China’s top ruling body heightened concerns that Xi Jinping was doubling down on ideological policies at the expense of Economic Growth.

The Hang Seng index fell more than 4% in early trading.

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Hong Kong-listed shares of tech giants Alibaba Group Holding Ltd and Tencent Holdings Ltd plunged more than 7% and the Hang Seng Tech index fell more than 5% to a record high. Hong Kong-listed Chinese developers fell more than 7%.

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Xi secured an unprecedented third term in office on Sunday and introduced the new Politburo Standing Committee made up of loyalists.

The nominations “show China moving from economic pragmatism to political ideology,” said Ales Koutny, emerging markets portfolio manager at Janus Henderson Investors.

“The message here is clear: COVID Zero lockdowns, the shared prosperity agenda and sectoral repressions are going nowhere,” he said, adding that he believed these risks would limit the annual economic growth of the region. China only 2-3%.

China’s gross domestic product (GDP) rose 3.9% in the July-September quarter year-on-year, official data showed on Monday, rebounding at a faster pace than expected, but it didn’t enough to encourage investors.

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Equity declines were more subdued for mainland markets which are less vulnerable to overseas selling and which were also supported by a surge in Chinese defence-related stocks as investors bet geopolitical tensions, especially about Taiwan, will intensify.

China’s blue-chip CSI300 index fell about 2%, while the Shanghai Composite index lost 1%.

The offshore yuan fell to 7.2790 to the dollar, near record lows. The onshore yuan also fell after the People’s Bank of China set the median rate at its lowest level since June 1, 2020.

Goldman Sachs analysts wrote in a client note on Sunday that the lack of proven, market-oriented economic reformers among China’s top executives meant the risk premium for Chinese offshore equities « could remain high in the near term. »

They added that they expect a gradual easing of China’s strict zero COVID policy to begin in the second quarter of next year.

Tourism, leisure and hotel and restaurant stocks – sectors that have been ravaged by the zero COVID policy – ​​also saw sharp declines. (Reporting by Shanghai and Hong Kong Newsroom; Editing by Edwina Gibbs)


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