China’s stock exchanges are under considerable pressure. Tech titles in particular lose significantly. The reason: President Xi has cemented his power and sidelined potential opponents.
China’s stock markets are digesting the plunge they suffered on Monday. After all, the leading indices in Shanghai and Hong Kong went out of trading today hardly changed – at the start of the week they had plummeted. In numbers, Hong Kong’s Hang Seng lost 6.4 percent, the sharpest one-day drop since the 2008 global financial crisis. The Shanghai Composite is down two percent.
Both indices had already suffered sharp losses this year. In Shanghai it has fallen more than 18 percent so far, in Hong Kong around 35 percent. The reason for the recent price slide: State and party leader Xi Jinping has cemented his power and replaced potential opponents with loyalists. This suggests that Xi will continue his ideology-driven policies at the expense of economic growth.
Foreigners in particular are therefore parting with Chinese stocks. On Monday, they sold the equivalent of $2.5 billion net worth of mainland-traded securities, according to Bloomberg, the financial portal, the highest total since data collection began in 2016.
Two decisions made by Xi are particularly scaring investors: his zero-Covid strategy and stricter regulation of companies, especially in the technology sector.
Xi has decreed a zero-Covid policy for the People’s Republic, in which individual outbreaks are immediately combated by cordoning off entire districts. The economy suffers as a result. For now, it doesn’t look like Xi will soften the crackdown.
In addition, Xi wants to assert the absolute power claim of the Communist Party he leads in the private sector as well. This can be seen particularly clearly in tech companies, which are constantly subject to new rules and regulations. As a result, companies like the online giants Alibaba, Tencent, Meituan, JD.com and Pinduoduo have lost a lot of sex appeal among investors, and the share prices of the stock market heavyweights have fallen far short of their record highs.
However, some investors remain optimistic: “Monday’s sell-off in Chinese stocks is not in line with fundamentals and offers investors an opportunity,” according to analysts at US bank JPMorgan. “We believe this is a good opportunity to add on an expected growth rebound, gradual Covid easing and monetary and fiscal stimulus.”
Other investors, on the other hand, are cautious. With Xi’s focus on “common prosperity” — that is, against the significant wealth of individuals — big companies remain in the crosshairs, said IG analyst Yeap Jun Rong. This will lead to more investors turning away from large Chinese technology companies.
