SHANGHAI – Foreign investors are on track to turn sellers of Chinese equities for the first time ever for the year, as concerns about a lack of supportive policies from the Communist Party Congress and a renewed Covid-19-zero push spook markets.
Overseas investors sold a record net 17.9 billion yuan (S$3.5 billion) of mainland shares via trading links with Hong Kong on Monday, according to Bloomberg data, tipping the year-to-date level into a small net outflow. If this holds to the end of the year, it would be the first annual decline since the stock connect programme was launched in 2014.
Panic selling hit markets on Monday, following the nation’s twice-a-decade political event, with the Hang Seng China Enterprises (HSCE) Index, a gauge of Chinese stocks listed in Hong Kong, plunging 7.3 per cent to the lowest level since the 2008 financial crisis.
On Tuesday, Hong Kong and Shanghai stocks saw big swings following the previous day’s rout. The HSCE Index closed up 1.3 per cent as some traders hunted for bargains. But China’s blue-chip CSI 300 Index closed down 0.16 per cent and Hong Kong’s Hang Seng Index dipped 0.1 per cent after tanking 6.4 per cent on Monday.
President Xi Jinping’s consolidation of power is seen as a major risk, with expectations that the leadership reshuffle would bring a continuation of key policies such as zero-Covid-19.
“Foreign sentiment on Chinese stocks is low now,” said Bloomberg Intelligence analyst Marvin Chen, as the party congress signalled no imminent changes to Covid-19 policies.
“Markets may need to wait to closer to the Central Economic Work Conference in December to see how the new leadership will address China’s economic challenges,” he said.
China bears are growing by the day as traders turn sceptics of the nation’s economic growth prospects, hampered by strict pandemic curbs and the heavily battered property sector. The benchmark CSI 300 Index dropped 2.9 per cent on Monday amid the broader sell-off, despite the nation posting better-than-expected third-quarter gross domestic product data.
Investors are now looking ahead to whether the new leadership can deliver much-needed stimulus to stem further losses. Two economic gatherings later this year – the Politburo meeting and the Central Economic Work Conference – will be closely watched for such policies.
Monday’s epic sell-off in Chinese assets was front-page news from Hong Kong to London and New York. But for Chinese state media, it was as if the rout never happened.
Instead, the country’s top financial newspapers dedicated the bulk of their front pages to official news articles about President Xi. The Shanghai Securities News had a brief story on its fourth page about domestic shares declining, without giving a reason. There was also no mention of the sell-off on Weibo’s top 50 trending list on Tuesday morning. BLOOMBERG
