October will be more volatile than ever for China stocks

HISTORY shows that October is the most volatile month of the year for the stock market. This year, the psychological anticipation of the October effect is even heavier. With the Chinese Communist Party’s 20th National Congress looming this weekend, all eyes will be on decoding its leadership reshuffle given Beijing’s increased opacity under President Xi Jinping’s leadership. 

The Caixin China General Services Purchasing Managers’ Index - an indicator of economic health - fell in September for the first  time since May to 49.3 from 55 in August. Business activities actually recovered from June to August but Covid-19 outbreaks in various parts of China last month disrupted the momentum. The dichotomy of China’s relationship with the pandemic and the rest of the world looks likely to widen. Economists are now predicting gradual relaxation in the first-half of 2023 at best.

Optimists are betting that after the Party Congress ends next week, Beijing will be able to focus less on politics and more on the economy, which is seeing cracks at all its growth pillars from property to logistics, exports, smartphone supply chain and technology, to name a few. But this optimism is tampered after a commentary by the Chinese Communist Party’s flagship newspaper, People’s Daily, signaled leaders would continue pandemic controls after the pivotal political meeting is over.