CNN Business from Hong Kong –
Hong Kong shares had their worst day since the 2008 global financial crisis, just a day after Chinese leader Xi Jinping secured his iron grip at a major political meeting.
Foreign investors spooked by the outcome of the Communist Party’s leadership reshuffle dumped Chinese shares and the yuan despite the release of stronger-than-expected GDP data. They worry that Xi’s tightening of power will lead to a continuation of Beijing’s existing policies and further weaken the economy.
Hong Kong’s benchmark Hang Seng Index (HSI) fell 6.4% on Monday, marking its biggest daily drop since November 2008. The index closed at its lowest level since April of 2009.
The Chinese yuan weakened sharply, hitting a new 14-year low against the US dollar in the onshore market. In the offshore market, where it can trade more freely, the currency fell 0.8 percent, near its weakest level on record, even as China’s economy grew 3.9 percent in the third quarter from a year ago, according to the National Statistics Office. . Economists polled by Reuters had expected growth of 3.4%.
The sharp sell-off came a day after the ruling Communist Party unveiled its new leadership for the next five years. In addition to securing an unprecedented third term as party chief, Xi packed his new leadership team with staunch loyalists.
The new leadership team was missing several senior officials who have supported market reforms and opening up the economy, raising concerns about the future direction of the country and its relations with the United States. Among those left out were Premier Li Keqiang, Vice Premier Liu He and Central Bank Governor Yi Gang.
“The leadership reshuffle appears to have spooked foreign investors into offloading their Chinese investment, triggering a sharp sell-off in Hong Kong-listed Chinese stocks,” said Ken Cheung, chief Asia currency strategist at Mizuho Bank.
The GDP data marked a rebound from a 0.4% rise in the second quarter, when China’s economy was battered by widespread Covid lockdowns. Shanghai, the country’s financial center and a key global trade hub, was shut down for two months in April and May. But the growth rate was still below the official annual target the government set earlier this year.
“The outlook remains bleak,” Capital Economics senior China economist Julian Evans-Pritchard said in a research note on Monday.
“There is no chance that China will lift its zero-Covid policy in the near future, and we do not expect any significant relaxation before 2024,” he added.
Along with a further weakening of the global economy and a persistent decline in China’s real estate, all headwinds will continue to weigh on the Chinese economy, he said.
Evans-Pritchard expected China’s official GDP to grow just 2.5% this year and 3.5% in 2023.
Monday’s GDP data was initially scheduled for release on October 18 during the Chinese Communist Party congress, but was postponed without explanation.
The possibility that policies such as zero-Covid, which has led to widespread lockdowns to contain the virus, and “common prosperity” – Xi’s drive to redistribute wealth – could increase was causing concern, Cheung said. .
“With the Politburo Standing Committee made up of President Xi’s close allies, market participants read the implications as President Xi’s consolidation of power and policy continuation,” he added.
Mitul Kotecha, head of emerging markets strategy at TD Securities, also noted that the demise of reform-friendly officials under the new leadership bodes ill for the future of China’s private sector.
“The departure of the Politburo Standing Committee and its replacement by Xi allies suggests that ‘common prosperity’ will be the primary thrust of officials,” Kotecha said.
Under the banner of the “Common Prosperity” campaign, Beijing launched a strong crackdown on the country’s private enterprise, shaking almost every industry at its core.
“The [market] The reaction in our view is consistent with reduced prospects for significant stimulus or changes to the zero-Covid policy. Overall, the prospects for a re-acceleration in growth are limited,” Kotecha said.
In China’s tightly controlled domestic market, the benchmark Shanghai Composite Index fell 2%. The tech-heavy Shenzhen Component Index lost 2.1%.
The Hang Seng technology index, which tracks the 30 largest tech companies listed in Hong Kong, fell 9.7%.
Shares of Alibaba ( BABA ) and Tencent ( TCEHY ), the crown jewels of China’s tech sector, plunged more than 11%, wiping a combined $54 billion off their market value .
The sale also took place in the United States. Shares of Alibaba and other leading New York-listed Chinese stocks, including electric vehicle companies Nio ( NIO ) and Xpeng , Alibaba rivals JD.com ( JD ) and Pinduoduo ( PDD ) and the search engine Baidu (BIDU), fell sharply. premarket