The benchmark of Chinese stocks fell to its lowest level since January 2019, reflecting the loss of investor faith in the country’s earnings and economy. On Thursday, the CSI 300 Index (000300.SS) closed down 0.4%, marking a 14% slide since reaching a peak in May. This downward trend puts the benchmark of onshore shares on track for a fourth consecutive year of losses.
The confidence in China’s short-term recovery has diminished due to a prolonged property crisis impacting consumption and the country’s growth target of around 5%. Additionally, escalating geopolitical tensions ahead of the November US presidential elections have further weakened market sentiment. Both candidates intensified their anti-China rhetoric during the debate broadcasted in Asia on Wednesday.
Nathan Chow, senior economist at DBS Bank (Hong Kong) Ltd, stated, “The depth and entrenchment of challenges such as disinflationary pressures, anemic consumption, and an extended property slump have now become apparent, shifting market sentiment sharply bearish.”
In response to the market’s weakness, China has implemented measures such as state funds’ purchases of exchange-traded funds and increased oversight of short-selling and quant trading activities this year. Although these measures initially sparked a rally from February through mid-May, the subsequent decline indicates that traders seek a fundamental resolution to the property issues and a more business-friendly environment.
The extended market slump poses a risk for Xi Jinping’s government as it could further diminish confidence and hinder the prospect of economic recovery. August data indicates that the economy is struggling to regain momentum, with factory activity contracting for a fourth consecutive month and core inflation cooling to the weakest in more than three years.
As the US election nears, both presidential candidates have launched verbal attacks against China during this week’s debate. Vice President Kamala Harris criticized former President Donald Trump for not safeguarding American interests against China, while Trump hinted at further tariff increases on China if elected in November.
Kenny Wen, head of investment strategy at KGI Asia Ltd, commented, “On top of China-US relations being influenced by both presidential candidates’ anti-China stance, macro factors are affecting investment sentiment. Technically, if the CSI 300 breaches this year’s support level, there may be another round of selling pressure, potentially testing the index’s 2019 low or even lower.”
