The picture in Chinese stock markets is downright ugly after another 3.7% decline in Hang Seng today.
Hang Seng daily
It’s now trading at the lowest since October 2022 while the Shanghai Composite has broken the 2022 lows.
The market has lost faith in China as a global growth driver despite today’s 5.2% GDP number. It’s filtering into FX where the Australian dollar is the laggard for the second day today.
US equities are holding up but you have to start worrying about the ones with heavy China exposure, like Apple. It’s down 1.6% today and a few more ticks lower will put it at the lowest since November 7.
CAT is another China-exposed stock and it’s down 2.6% today.
The main worries about China that I hear are:
- Inevitable war with Taiwan
- Property bubble continues to burst
- No strong efforts towards fiscal or monetary stimulus despite nil inflation
- US-China decoupling and US blockades on technology
- Worsening demographics
The bulls have some good points as well with shares like BABA trading at remarably low valuations. At a speech in Davos yesterday, China PM Li Qiang tried to highlight the upside.
“In China, there are now over 400 million people in the middle-income bracket, and the number is expected to reach 800 million in the next decade or so.”
That would be larger than the entire combined populations of the US and EU currently.
I think opportunity is knocking here but sentiment is so bad that the bottom could continue to fall out for weeks to come. It’s starting to remind me of March 2008 when US stocks fell seemingly every day before bottoming.
There’s an opportunity for the PBOC to cut rates on Monday but what I would like to hear is a pro-capitalist speech from Xi Jinping.