Hong Kong Stocks Plung 6% As Fears Over Xi Jinping’s Third Presidency Overtake China’s GDP Data | CNN Business

Hong Kong CNN Business — Hong Kong stocks have their worst day since the 2008 global financial crisis. One day after Chinese President Xi Jinping came to power at a major political gathering. Surprised by the results of the reshuffle of the Communist Party’s leadership, foreign investors sold Chinese stocks and the renminbi despite the release of stronger-than-expected GDP data. They are concerned that Xi Jinping’s strengthening of power will continue Beijing’s existing policies and hurt the economy even more. Hong Kong’s benchmark Hang Seng (HSI) index plunged 6.4% on Monday, marking its biggest daily decline since November 2008. The index closed at its lowest level since April 2009. Hong Kong’s Hang Seng Technology Index, which tracks the top 30 tech companies listed in Hong Kong, fell 9.7%. Shares of Chinese tech gems, Alibaba (BABA) and Tencent (TCEHY) both plunged more than 11%, taking a total of $54 billion from their stock market value. The Chinese yuan sharply weakened against the US dollar in regional markets, hitting a 14-year low. In the more freely tradable offshore markets, the currency fell 0.8% to hover near all-time lows. The sharp sell-off occurred a day after the ruling Communist Party announced a new leadership for the next five years. In addition to securing an unprecedented third term as his party leader, Xi Jinping has built his new leadership into a staunch loyalist. Senior officials who supported market reforms and economic openness pulled out of the new top team, raising concerns about the country’s future direction and its relationship with the United States. Among those who were pushed back were Premier Li Keqiang, Deputy Prime Minister Liu He and Central Bank Governor Lee Kang. Ken Cheung, chief Asian foreign exchange strategist at Mizuho Bank, said: “The leadership reshuffle seems to have triggered a massive sell-off of Chinese stocks listed in Hong Kong as foreign investors are burdened with investing in China.” He added, “As the Politburo Standing Committee is made up of President Xi Jinping’s close aides, market participants understand the implications for Xi Jinping’s strengthening of power and continuation of his policies,” he added. Qing said the possibility of expanding policies such as a zero-coronavirus leading to an all-out lockdown to contain the virus and “shared prosperity,” Xi Jinping’s attempt to redistribute wealth, is raising concerns. Mitul Kotecha, head of emerging markets strategy at TD Securities, said the loss of reform-backed officials from the new leadership is not a good sign for the future of China’s private sector. “The departure of stimulus-supporting officials and reformers from the Politburo Standing Committee and replacing them with Xi Jinping’s allies suggests that ‘common prosperity’ will be the bureaucracy’s top priority,” Kotecha said. Under the banner of a “prosperity for common” campaign, Beijing launched an all-out crackdown on China’s private enterprises, shaking almost every industry to its core. “car [market] From our point of view, the response is consistent with a reduction in prospects of significant stimulus or a change in the zero-coronavirus policy. Overall, the chances of growth accelerating again are limited,” said Kotecha. In China’s tightly controlled domestic market, the benchmark Shanghai Composite Index fell 2%. The tech-focused Shenzhen Components Index fell 2.1%. The market downturn occurred despite the release of better-than-expected economic data. China’s economy grew 3.9% in the third quarter from a year ago, according to the National Bureau of Statistics of China. Economists surveyed by Reuters expected growth of 3.4%. GDP data shows the Chinese economy rebounded from a 0.4% gain in the second quarter, which was hit by a widespread Covid lockdown. Shanghai, China’s financial center and major global trade hub, was closed for two months in April and May. However, the growth rate still fell short of the official annual target set by the government earlier this year. “The outlook remains bleak,” Julian Evans-Pritchard, chief China economist at Capital Economics, said in a research report Monday. “It is unlikely that China will withdraw its zero-coronavirus policy in the near future, and we do not expect any meaningful easing before 2024,” he added. He said all headwinds will continue to weigh on the Chinese economy, along with further weakening of the global economy and the continued slump in Chinese real estate. Evans-Pritchard expects China’s official GDP to grow by 2.5% this year and 3.5% in 2023. Monday’s GDP data was originally scheduled for release on October 18, during the Chinese Communist Party Congress, but has been delayed without explanation.

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