According to Bloomberg estimates, Hong Kong-listed Chinese stocks collapsed to the weakest level in almost 19 years. Investors’ sentiment turned sour due to inefficient fiscal stimulus adopted by Beijing last year and failed support measures for the stock market.
Discouraged by heavy losses and gloomy forecasts, investors rushed to sell Chinese shares. To avert the massive capital flight, China’s monetary authorities have to revise urgently monetary policy.
On January 22, the Hang Seng China Enterprise index (HSCI) tumbled by 2.96% to close at 4,975.3 points, the lowest level since July 2005. Bloomberg experts say that the ongoing slump made the HSCI one of the worst-performing benchmark stock indices in Asia. Chinese high-tech giants incurred the heaviest losses. Meituan shares sank by 5.5% in a single trading day. Tencent Holdings dropped by 3.46%. The Shanghai Shenzhen CSI 300, the stock index for Mainland China, fell by 1.56% to close at 3,218.9 points.
Chinese commercial banks put their lending rates on hold in mid-January. This move followed the recent decision of the People’s Bank of China to maintain borrowing costs at high levels. The one-year loan prime rate was kept at 3.45% while the five-year rate was left at 4.2%. This decision disappointed investors hoping for more aggressive stimulus from the monetary authorities.
Marvin Chen, equity strategist at Bloomberg Intelligence, thinks that the current bear trend in China’s stock market is driven by the sluggish economic recovery and redistribution of investments to higher-yielding assets. At the moment, the growth of global markets is propelled mainly by chipmakers’ stocks. In this area, China and other countries may follow different paths as geopolitical tensions intensify in the world, Marvin Chen concludes.