CHINESE stocks fell on their return from the Golden Week holiday, hurt by a global equities selloff and bleak holiday-spending data that deepened concerns about an economic recovery.
The benchmark CSI 300 Index dropped as much as 1.2 per cent to head for its lowest close since April 2020. Tech and consumer discretionary sectors drove the decline. The Hang Seng China Enterprises Index of Chinese stocks in Hong Kong slid nearly 3 per cent. The onshore yuan edged higher against the dollar.
Grim reality faced mainland traders on Monday (Oct 10), with trends last week showing a sharp slide in holiday spending, a rebound in virus cases and no respite from the property crisis. Data Saturday showed China's services activity contracted in September for the first time in four months amid Covid lockdowns in major cities.
With little conviction of a market bottom, investors are reluctant to build positions ahead of the Communist Party congress on Oct 16, where leadership will be confirmed and key policies unveiled.
"A slew of weak macro-economic data that China has released shows that there is very limited room for an economic rebound in the short term, which is hard to provide support for earnings and market confidence," said Shen Meng, a director at investment bank Chanson & Co in Beijing. Rising expectations for a 75-basis point Fed hike in November are also hurting sentiment in today's onshore market, he said.
Meanwhile, Sino-American tensions were again back in focus as the Biden administration's Friday announcement of new restrictions on China's access to US semiconductor technology caused the Asian nation's chip shares to slide on Monday.
"China is still very much under Covid's shadow and headwinds from the US," said Steven Leung, executive director at Uob Kay Hian (Hong Kong). "All eyes are on the 20th party congress. Politically, investors are focusing on who will be the new premier and what that means for economic policies."
Bleak tourism and entertainment spending data for the week-long holiday was another proof that consumer demand in China continues to weaken in the face of Beijing's Covid curbs.
Tourism revenue declined 26 per cent to 287 billion yuan (S$57.9 billion) over the week-long holiday from a year ago. Compared with pre-pandemic levels in 2019, revenue was down nearly 56 per cent. Roughly 422 million trips were taken, down 18 per cent from last year and 39 per cent from 2019 levels.
Hopes of a strong post-holiday gain for Chinese stocks were also dented after Friday's solid US jobs figures sent shares tumbling again on bets for aggressive Federal Reserve rate hikes. The Nasdaq Golden Dragon China Index slumped more than 4 per cent on Friday, wiping out all its gains for the week that onshore traders were away.
The CSI 300 has now fallen more than 23 per cent in 2022, heading for its first back-to-back annual declines in a decade. Stocks have continued to be sold off as traders see any shift away from Covid Zero or massive stimulus as unlikely at the upcoming leadership gathering.
"We're very unlikely to see any kind of big bang easing, but a gradual easing of approach over a matter of months, which leads to a pickup in growth from really very low levels now," Jonathan Garner, chief of Asia and emerging markets strategist at Morgan Stanley, said in a Bloomberg TV interview.
"Valuations in China are extremely cheap," he said, adding that in terms of the actual performance of the market going forward, a lot will hinge on "how we come out of the party congress".
On the currency market, the onshore yuan traded 0.1 per cent stronger at 7.1127 per dollar as markets reopened, with the central bank setting a stronger-than-expected fixing for the 28th day. The offshore yuan also gained. BLOOMBERG