March 28, 2023

UPDATE 2-Hong Kong stocks plunge on economic fears of Xi reunion fan; the yuan weakens

(Resubmit, add market comments and update prices)

Written by Xie Yu and Summer Zhen

HONG KONG, Oct 24 (Reuters) – Hong Kong shares fell to a 13-year low on Monday and the country’s yuan hit its weakest in 15 years after Xi Jinping’s newly unveiled leadership team fueled fears that economic growth is being sacrificed to ideology. politics.

The Hang Seng index fell 5% in early afternoon trade, touching levels last seen during the 2008-2009 global financial crisis.

Hong Kong-listed shares of tech giants Alibaba Group Holding Ltd and Tencent Holdings Ltd fell 10% and 8%, dragging the Hang Seng Tech Index down 7% to a record low. Hong Kong-listed Chinese developers fell 9% to record lows.

Both the real estate and technology sectors have been targeted for far greater regulation under Xi.

Xi secured an unprecedented third term as leader on Sunday, introducing a new Politburo Standing Committee packed with loyalists.

The appointments “showed China’s shift from economic pragmatism to political ideology,” said Ales Koutny, emerging markets portfolio manager at Janus Henderson Investors.

“The message here is clear: A COVID Zero lockdown, shared prosperity program and sectoral crackdowns will lead nowhere,” he said, adding that he believes these risks will limit China’s annual economic growth to just 2-3 percent.

China’s gross domestic product (GDP) rose 3.9% from a year earlier in the July-September quarter, official data showed on Monday, recovering faster than expected but not enough to cheer investors.


Shares were more subdued in mainland markets, which are less vulnerable to foreign sales, and were bolstered by gains in Chinese defense-related stocks as investors believe geopolitical tensions, particularly over Taiwan, are intensifying.

China’s bluechip CSI300 fell 2.3%, while the Shanghai Composite fell 1.4%.

The onshore yuan fell to its weakest level in 15 years. The offshore yuan, which has been trading since 2011, fell as low as 7.2790 per dollar, near a record low.

Cross-border China-Hong Kong Stock Connect saw a net inflow of about 9.2 billion yuan ($1.3 billion) as of Monday morning.

“A short-term negative factor remains China’s extremely strict COVID policy, which has affected foreign investors’ confidence in China,” said Yuan Yuwei, fund manager at Water Wisdom Asset Management.

Ruined by China’s zero-covid policy, which aims to suppress any outbreaks and has led to repeated shutdowns, industries such as tourism, leisure and hospitality saw sharp declines.


During the 20th Congress of the Communist Party, Xi reaffirmed his pursuit of common prosperity, pledging to distribute income more fairly and “standardize the mechanisms of wealth accumulation.”

He also emphasized national security and said that China must secure supply chains, have enough grain and energy, and work towards technological self-sufficiency.

The amendment to the Communist Party’s constitution affirmed the “cultivation of fighting spirit, strengthening fighting ability”, and also included for the first time a call to resist and intimidate Taiwan’s independence-seeking forces.

As investors shunned Internet companies and real estate developers, some of those funds were diverted to chipmakers, high-end equipment makers and defense stocks.

Minyue Liu, Greater China investment specialist at BNP Paribas Asset Management, said her portfolio has reduced its exposure to stocks exposed to rising geopolitical risks, favoring instead stocks related to technology innovation, industrial upgrades and the energy transition.

Some investors are less pessimistic, arguing that 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 grow the economic pie through quality growth,” said Mark Dong, head of Minority Asset Management (Hong Kong).

($1 = 7.2535 Chinese yuan) (Reporting by Shanghai and Hong Kong News Agency; Editing by Edwina Gibbs)

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