Market Turmoil: China Index Plunges Amid Holiday Absence and Rate Fears

03.10.2023 posted by Admin

Golden Week Absence Sparks Sharp Index Drop

The Hang Seng China Enterprises Index took a sharp 3.2% tumble, marking its most significant drop in nearly three months. This decline occurred because mainland traders were absent due to the Golden Week holiday, and there was a growing belief in higher US interest rates, which boosted the value of the dollar and dampened market sentiment throughout the region.

This rocky start to the new quarter reflects the long-standing negative sentiment that has been affecting Chinese stocks for most of this year. Despite positive data from China's recent holiday weekend, which revealed a doubling of tourism revenue compared to the previous year, Hong Kong experienced widespread declines on Tuesday. Furthermore, a report from Morgan Stanley indicated that global funds reduced their Chinese stock holdings in September, reaching their lowest level since 2020 on average.

Vey-Sern Ling, the Managing Director at Union Bancaire Privee, pointed out that Chinese investors were not actively participating in the market this week due to the holidays. This absence suggests that the investor base is skewed towards those with a pessimistic view of China. Investor interest in China is diminishing, and concerns about the Federal Reserve maintaining higher interest rates for an extended period have exacerbated the selloff in Hong Kong.

Hong Kong-listed equities are more closely tied to foreign fund movements compared to onshore Chinese shares, making them more susceptible to global developments. A gauge of Asian shares was heading towards its lowest closing point since November due to a more hawkish stance from the Federal Reserve, which led to a Treasury selloff and a stronger dollar.

During the September market downturn, mainland traders provided support for Hong Kong shares by consistently buying them through trading links. This amounted to a net buying position in all but three sessions, as reported by Bloomberg data. These southbound flows constitute approximately 15% of the Asian financial hub's trading volume, according to Marvin Chen, a strategist at Bloomberg Intelligence.

The HSCEI gauge suffered notably from declines in technology and financial stocks, making it one of the world's worst-performing major equity markets this year. It erased all gains made on Friday when optimism about increased spending during China's holiday briefly lifted market sentiment. Mainland China's markets remained closed for the entire week.

As Golden Week traditionally marks a peak season for new home sales, the data for this week will serve as a significant indicator for the property market's prospects for the rest of the year, according to David Chao, the Asia Pacific ex-Japan strategist at Invesco Asset Management.
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