On Friday afternoon, a significant selloff in Chinese stocks took place. Disappointing tech earnings added to the existing sentiment weakness caused by concerns over Donald Trump's imminent return. The mainland benchmark CSI 300 Index (000300.SS) slumped by 3.1%, marking the most since October 9. The Hang Seng China Enterprises Index of Chinese stocks traded in Hong Kong also lost 2.1%, capping a second consecutive week of losses. A gauge of Chinese tech stocks in Hong Kong even tumbled into a technical bear market.
Retreat Underlines Frustration and Jitters
This market retreat has extended since the October peak, highlighting the growing frustration with the pace of Beijing's fiscal stimulus rollout and the jitters over a potential escalation in US-China tensions. The disappointing earnings from consumption bellwether PDD Holdings Inc. and online search company Baidu Inc. have further dented confidence. For instance, Baidu Inc. recorded its biggest revenue drop in more than two years. PDD warned that its profitability will trend downward over time due to intensifying competition in its home market of China. Traders also pointed to a statement by Texas Governor Greg Abbott dated November 21, which prohibited state agencies from putting new money into investments originating from China and urged a divestment of previous holdings. This worsened fears that some of the largest US funds may avoid investing in China as part of political considerations.Impact on Sentiment and Investor Confidence
The statement from Texas has had a significant impact on sentiment, especially when the market was already lacking momentum. Executives like Steven Leung, an executive director at UOB Kay Hian Hong Kong, have noted that investors have found no improvement in various sectors such as property, equity, and consumption. There have been no positive surprises from corporate earnings either. Traders had hoped that Chinese tech earnings would help regain confidence in the economy's trajectory, but they were faced with the harsh reality of anemic consumer spending.Market Outlook and Analyst Views
After a massive rally in late September driven by monetary easing, the market's outlook has been under debate. Wall Street analysts, including those at Morgan Stanley and CLSA, have recently trimmed their recommendations on Chinese stocks. However, some have said that a selloff could present an opportunity to add positions as Beijing likely has enough policy tools to counter US president-elect's tariff proposals. There are signs that the stimulus so far has stabilized the economy. Retail sales exceeded forecasts in October, and industrial production increased at a slightly slower pace from the previous month but still hovered above a level critical to achieving the government's 2024 growth target of around 5%. Yet, the rising uncertainties mean the market will see increased volatility heading into 2025. Xin-Yao Ng, an investment manager at abrdn Plc, pointed out that the broader market is still facing uncertainties around macro. Better October numbers were partly boosted by early Singles' Day promotions on the retail side and timing around policy easing on the property side, so there are questions about sustainability. Regarding tariffs, he believes that Trump will start to negotiate with various governments, but the appointees to the government are many China hawks, so it's not a great situation.The Hang Seng Tech Index fell 2.6% on Friday, taking its decline from the October high to over 20%. The Hang Seng China gauge has now lost 17% since its October peak, and the CSI 300 Index is down more than 9%.