China’s Economic Uncertainty Weighs on Stocks
As the new year begins, Chinese stocks are off to a rocky start, with the CSI 300 Index plummeting 2.9% on Thursday, its steepest drop on a year’s first day of trading since 2016. This decline is a clear indication of investors’ unease about the country’s economic prospects.
Manufacturing Data Disappoints
The Caixin manufacturing survey fell short of expectations, casting a shadow over China’s economic recovery. Additionally, the looming threat of higher tariffs from the incoming US administration has investors on edge.
Technical Threshold Breached
The CSI 300 Index’s sharp fall in the last trading session of 2024 pushed it below the 60-day moving average, a key technical threshold. This breach is likely to trigger further selling by some funds, exacerbating the market’s losses.
Financial Stocks Take a Hit
Several large financial stocks, including Industrial and Commercial Bank of China and the Agricultural Bank of China, traded ex-dividend, contributing to the benchmarks’ losses.
Investor Sentiment Remains Fragile
Despite Beijing’s stimulus signals in December, investor confidence remains fragile. “The underlying momentum for China remains quite fragile, and it will take some efforts from the authorities to change the conversation on the country’s medium-term deflationary dangers,” said Homin Lee, senior macro strategist at Lombard Odier.
Stimulus Hopes Dashed
While Chinese stocks rose 15% last year, the bulk of the increase came in the weeks following a late September stimulus blitz. Since then, the market has been trading range-bound, with investors waiting for more significant stimulus to drive the market higher.
Caution Ahead
Traders may want to limit their China exposure in their portfolios as they position for 2025, according to Charu Chanana, chief investment strategist at Saxo Markets. Global funds had already turned net sellers of Chinese stocks in November, and passive funds turned to outflows after heavy inflows in October.
Bond Yields Hit Record Low
As economic concerns linger, China’s 10-year bond yields hit a fresh record low on Thursday. The People’s Bank of China injected massive liquidity into the market at the end of 2024, preserving policy space before the new US administration takes office.
Trading Volume Slows
Equity trading volume was notable in Hong Kong on Thursday, but turnover in Shanghai and Shenzhen bourses has remained below 1.5 trillion yuan ($206 billion) in recent days, suggesting traders are opting to remain on the sidelines until catalysts become clear.
Investors Await Clarity
“The losses today look very much trading driven, as there was a bit of accumulated gains that would have prompted selling with the breach of technicals,” said Liu Dejun, fund manager at Beijing Kaiyuan Private Fund Management Co. “Many are also talking about avoiding too much stock exposure ahead of the Lunar New Year holidays.”
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