China, Hong Kong stocks slide after president’s milestone speech leaves out stimulus for kick-starting a slowing economy
- Xi did not give clear signals about direction of future economic reform at a time when the Chinese government’s commitment to market liberalisation is seen to have waned
Equity prices slid in Hong Kong and mainland China, following an overnight bloodbath in the US markets and a keynote speech Tuesday by Chinese President Xi Jinping that failed to provide a much-anticipated stimulus to kick-start the sagging economy.
The Shanghai Composite Index, which started Tuesday’s trading with single point gain, closed 0.8 per cent lower at 2,576.65 in Shanghai. The Shenzhen Composite Index closed 0.8 per cent down at 1,312.55. The Hang Seng Index closed down 1 per cent, ending at 25,814.25.
Xi, in a speech marking the 40th anniversary of China’s economic reforms, provided a glowing report card of how China’s growth rate had tripled the rest of the world’s average pace since 1978, and how the nation’s contribution to the global economy had increased eightfold.
But he pointedly refrained from announcing any new policy initiatives, unveiling any financial stimulus to boost the economy’s sagging growth, or providing a clear path out of the nation’s trade war with the United States.
In January, vice-premier Liu He told the 48th World Economic Forum in Davos that China would launch new and stronger reform measures at the 40th anniversary of reform and opening up, saying “some of our measures will exceed expectations of international community.”
Traders had expected more from Xi due to Liu’s comments as well as because of last week’s economic data showing China’s industrial production and retail sales were far below expectations.
“There was a sense of disappointment, among both local and international investors, that Xi did not give clearer signals about the direction of future economic reform at a time when the Chinese government’s commitment to market liberalisation is seen to have waned,” said Tom Rafferty, regional manager for China at The Economist Intelligence Unit.
“His speech also contained no fresh policy initiatives, in contrast to earlier speeches in 2018 at the China International Import Expo and the Boao Forum for Asia. As such, it is unlikely to galvanise financial markets anxious about the trajectory of China’s economic growth and prospects for the US-China trade talks.”
Property stocks were the top losers, amid concerns that a slowing economy will make housing out of reach for more people.
China Evergrande fell 4.2 per cent on the Hong Kong exchange to HK$24.15, while China Overseas Land & Investment dropped 2.6 per cent to HK$26.55.
China Vanke, one of the country’s biggest home builders, fell 3.9 per cent to 25.50 yuan on the Shenzhen exchange, its lowest level since December 10. China Fortune Land fell 6.1 per cent to 30.15 yuan, the lowest level in 10 trading days.
Asian stock markets from Seoul to Sydney also fell, tracing the Dow Jones Industrial Average’s 2.1 per cent plunge overnight, ahead of the US Federal Reserves’ next possible interest rate increase this week.
The Nikkei 225 index fell 1.8 per cent to 21,115.45, while the Kospi dipped 0.4 per cent to 2,062.11. In Australia, the S&P300 fell 1.2 per cent to 5,542.88.
The Fed is scheduled to hold its two-day monetary policy meeting and announce its decision on Thursday Hong Kong time.
“The market’s overriding fear is that the Fed will press ahead with plans to raise interest rates, which could be too much for the US economy to handle,” said Jasper Lawler, head of research at London Capital Group.
“An indication from the Fed that they will slow their pace of hikes could calm these jittery markets. However, until the Fed has confirmed that as a course of action, investors will remain skittish. ”
Changyong Rhee, director of the IMF’s Asia and Pacific Department, said the trade war is already hurting Asia and the fund could further cut its global growth forecasts in January, according to Reuters on Monday.