© Reuters. FILE PHOTO: People walk past a screen displaying the Hang Seng stock market index in the Central District, Hong Kong, China July 19, 2022. REUTERS/Lam Yik
By Xie Yu and Summer Zhen
HONG KONG (Reuters) – Hong Kong stocks fell to their lowest level in 13 years on Monday and fell to their lowest level in 15 years after Xi Jinping’s newly unveiled leadership team heightened fears that economic growth is sacrificed for the benefit of ideological policies.
Trading fell 5% in the early afternoon, reaching levels last seen during the 2008-2009 global financial crisis.
Hong Kong-listed shares of tech giants Ali Baba (NYSE:) Group Holding Ltd and Tencent Holdings (OTC:) Ltd plunged 10% and 8% respectively, dragging the Hang Seng Tech index down 7% to a record low. Hong Kong-listed Chinese developers fell 9% to record highs.
The real estate and tech sectors have been targeted for much more regulation under Xi.
Xi secured an unprecedented third term in office on Sunday and introduced the new Politburo Standing Committee made up of loyalists.
The nominations “show China moving from economic pragmatism to political ideology,” said Ales Koutny, emerging markets portfolio manager at Janus Henderson Investors.
“The message here is clear: COVID Zero lockdowns, the shared prosperity agenda and sectoral repressions are going nowhere,” he said, adding that he believed these risks would limit the annual economic growth of the region. China only 2-3%.
China’s gross domestic product (GDP) rose 3.9% in the July-September quarter year-on-year, official data showed Monday, rebounding at a faster pace than expected, but it didn’t enough to encourage investors.
Equity declines were more subdued for mainland markets which are less vulnerable to overseas selling and were supported by a surge in Chinese defence-related stocks as investors bet geopolitical tensions, particularly over of Taiwan, will intensify.
China’s blue-chip CSI300 index lost 2.3%, while the CSI300 lost 1.4%.
The onshore yuan fell to its weakest level in 15 years. , in which trade started from 2011, slipped as low as 7.2790 per dollar, near its record low.
The China-Hong Kong cross-border Stock Connect saw a net outflow of around 9.2 billion yuan ($1.3 billion) on Monday morning.
“The short-term negative factor remains China’s extremely tough COVID policies, which have shaken foreign investors’ confidence in China,” said Yuan Yuwei, fund manager at hedge fund house Water Wisdom Asset Management.
Ravaged by China’s zero-COVID policy, which aims to eradicate all epidemics and has led to frequent lockdowns, sectors such as tourism, leisure as well as hotels and restaurants have seen steep declines.
At the 20th Communist Party Congress, Xi reaffirmed his commitment to common prosperity, pledging to distribute income more equitably and “normalize the mechanisms of wealth accumulation”.
He also stressed national security, saying China should secure supply chains, enough grain and energy, as well as work towards technological autonomy.
An amendment to the Communist Party’s constitution enshrined “the development of fighting spirit, the strengthening of fighting capacity”, while a call to oppose and deter forces seeking Taiwan independence also was included for the first time.
With investors abandoning internet companies and real estate developers, some of those funds have been redirected to chipmakers, producers of high-end equipment and defense stocks.
Minyue Liu, Greater China investment specialist at BNP Paribas (OTC:) Asset Management, said her portfolio had reduced its exposure to stocks vulnerable to increased geopolitical risks, favoring stocks related to technological innovation, industrial upgrades and energy transition.
Some investors are less pessimistic, saying China’s new leadership team is well aware of the importance of economic growth.
“I think there is a growing consensus among policymakers that one of the priorities should be to make the economic pie bigger, through quality growth,” said Mark Dong, managing director of Minority Asset. Management (Hong Kong).
($1 = 7.2535 Chinese Yuan)