Chinese stock markets crashed the day after Xi Jinping was re-elected for the third time in a row. Despite the relatively positive statistics on the growth of the republic's GDP, all key trade indices of China fell to multi-year lows during morning trading. At their peak, some stocks were down 15%. This is evidenced by trading data.
Hong Kong's Hang Seng China Enterprises Index fell 7.42% to 5,019.96 at its low on October 24, the lowest since the global financial crisis in 2008. Moreover, Bloomberg notes that such a sharp drop after the Congress of the Chinese Communist Party (CCP) has not been recorded since 1994, that is, since the foundation of the index. Hang Seng China Enterprises is one of the key indicators of the Chinese stock market, it includes quotes from global brands such as Alibaba, JD.com, Tencent, Xiaomi, Baidy, Sinopec, Lenovo, etc.
The Chinese stock index CSI 300, which includes shares of the three hundred largest shares listed on the Shanghai and Shenzhen stock exchanges, fell by the end of trading by 2.93% or up to 3633.37 points. The Shanghai Composite Index fell 2.02% to 2977.56 points, while the SZSE Component Index fell 2.02% to 10694.61 points. The yuan also came under pressure, dropping to a long-term low of ¥7.27 per $1.
Even the positive dynamics of China's GDP could not stop the fall, which grew by 3.9% in the third quarter of 2022, which is 0.5 p.p. surpassed analysts' forecasts. The economy grew a modest 0.4% last quarter. At the same time, the Chinese authorities were supposed to publish GDP statistics on Friday, but due to the “need to clarify some details”, the publication was postponed to a later date.
Large investment companies attribute the sharp drawdown in trading to Xi Jinping's re-election and the concentration of power in his hands. Investors fear that the Chinese political system has finally lost its existing checks and balances, and the Chinese leader's intention to control the stock market, as well as introduce tight control over the most profitable companies, will remain firm. Only supporters of Xi Jinping entered the Politburo of the Communist Party of China, moreover, during the congress, the previous head of China, Hu Jintao, was brought under the arms (the official reason was poor health).
“The market is concerned that with the election of so many Xi supporters, his unlimited ability to pursue market-unfriendly policies is now solidified,” said Justin Tang, head of Asian studies at United First Partners.
The too rapid fall of Hong Kong indices is due to the fact that historically there are non-residents on the Hong Kong stock exchanges who invest in China, and it was they who provoked excessive volatility in the market. In addition to political concerns, investors fear that there are now more hardliners in the Politburo on Covid-19, which involves strict quarantines and lockdowns, which in turn leads to a decrease in economic activity and a slowdown in the economy.
“The more centralized power becomes, the greater the risk of overzealous implementation of policies based on directives from above. This happened during some of the lockdowns in the second quarter,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics Ltd.
Finally, the factor of political tension between the US and China does not disappear from the radar, analysts say. The re-election of Xi Jinping and the consolidation of the postulate of the inadmissibility of Taiwan independence only create additional risks and market uncertainty in bilateral relations.