As the Wall Street stock market dropped to record low in eight months this week, China’s two main stock markets were hit even harder, with Shenzhen tumbling 6.5% and Shanghai down 5.2%.
After the Golden long weekend, China’s Stock Market has fallen on serious threats from Washington and impact of the trade war is much apparent. Yesterday, more than 1,000 stocks fell by the daily limit, or more than one in four. The Shanghai Composite Index ended below 2,600, a level not even breached during market crashes in 2015 and 2016.
Markets have responded to the message that President Donald Trump is determined to implement policies aimed at either slowing or halting China’s drive to become a superpower.
Trump says repeatedly that he wants to reduce America’s huge trade deficit with China by forcing US and other manufacturers to move out of that country. In the process, the U.S. would no longer be financing China’s ascent with a trade deficit and providing technological knowhow that has been either stolen or extorted.
To the Chinese economy, more is related to the scary thing about Vice President Mike Pence’s remarks, followed by reports that China chipmakers were installing devices in Apple and other products in order to spy on tech companies, in addition to comprehensive interference in US midterm elections.
Mike Pence has specifically berated the CCP’s “Made in China 2025” strategy for aiming to control 90% of the world’s most advanced industries including robotics, biotechnology, and artificial intelligence that has played an important role in the country’s most sophisticated inhumane censorship.
Although the Chinese authorities restrict the investment of large enterprises abroad, and have implemented tight control over its foreign exchange reserves by depreciating value of the yuan, the state traitors and many others have risked their lives to move cash out of the country due to loss of confidence in the CCP and its economy.
While local Chinese traders have shunned equities, sending the Shanghai Composite Index down by 22 per cent this year, overseas investors have maintained, until now, a strong interest, with global index compilers MSCI and FTSE Russell adding Chinese stocks to their benchmarks, according to South China Morning Post (SCMP).
Global fund managers bought a combined 277.5 billion yuan (US$40 billion) of mainland Chinese stocks, known as A shares, via the stock connect programmes in the nine months through September this year, according to Bloomberg data.
The markets have made a turn this month. SCMP reports that foreign investors, who were net buyers of Chinese stocks every month except February since 2017, have been dumping the mainland’s yuan-denominated shares daily in October through the exchange links with Hong Kong.
To counter the trade war and trying to save the weakening economy, the Chinese government on Sunday announced measures to cut the reserve requirement ratio (RRR). With this cut, both the Wall Street bankers and local investors were shocked.
The People’s Bank of China slashed the reserve requirement ratio for large banks (currently 15.5%) and small banks (13.5%) by 100 basis points effective Oct. 15. This is the fourth such cut this year. Beijing has pledged to expedite plans to invest heavily in infrastructure projects as the economy shows signs of cooling further, with investment growth recently slowing to a record low, according to Bloomberg.
The biggest hit has been China’s high-tech companies and the impact has been reflected from the Hong Kong Stock Exchange.
While financial markets were closed all last week in China for the Golden Week vacation, Hong Kong stocks fell for four consecutive days as investors grew increasingly concerned that the impact of the trade war is starting to show, Market Watch reports.
Let’s take a look at the BAT stocks.
Chinese Internet giant Tencent Holdings Ltd, one of the biggest tech stocks with a US$353 billion market value, has seen its stock fall 42% since reaching highs in January, amounting to hundreds of billions of dollars in losses.
Now, the worst is yet to come for the Shenzen-based multinational conglomerate, according to a growing group of bears on the Street, as outlined by Bloomberg, who earlier said, “The internet giant has lost an annualized 85 percent over the course of its six-week-long buyback adventure” and “This Is the world’s most disappointing stock”.
Next Alibaba. Alibaba stock closed at 138.29, down 5.9%, on the stock market today. Shares now trade near a 15-month low. Alibaba stock has dropped 34% since hitting a record high of 211.70 on June 5.
Several Wall Street analysts cut their price targets on Alibaba stock Wednesday, based on concerns about e-commerce sales trending below expectations and the impact of aggressive investments on profit margins.
Baidu created a change of minus 3.28 percent and closed its last session of business at $194.26.
Baidu’s growth has relied largely on a lack of serious competitors in the mainland. Baidu’s TAC is low because it has pricing power as the 800-pound gorilla in China’s online advertising market. The company controls 66% of China’s online search market, according to StatCounter. Its closest competitor, Alibaba’s Shenma, controls just 14% of the market.
As Jack Ma and seemingly more other tech giants are retiring under pressure, China’s private enterprises have felt the squeeze on all fronts. Although President Xi Jinping has pledged recently to support the development of private businesses, there is a clear message in the CCP’s policy to nationalize the biggest private companies.
According to Bloomberg, Wall Street is bracing for the prospect that the U.S. uses this month’s semiannual foreign-exchange report to label China a currency manipulator, escalating the trade standoff between the two nations at a time when rising bond yields are already denting riskier assets.
The scenario is viewed as possible — though not probable — given the yuan has tumbled more than 9 percent against the dollar over the past six months, raising speculation that China has been deliberately weakening the currency. The Trump administration is concerned about the yuan’s depreciation, according to a senior Treasury official who spoke Monday on the condition of anonymity, and U.S. Treasury Secretary Steven Mnuchin is facing pressure from the White House to formally impose the designation on China for the first time since 1994.
If that is the case China is a currency manipulator, confidence from the Wall Street and world investors in the future of China’s economy will come to a frozen point and the CCP leaders will find it even harder to save them from more turbulence.
U.S. President Donald Trump and Chinese President Xi Jinping plan to meet at the G20 summit in Argentina in late November, the Wall Street Journal reported on Thursday, citing officials in both countries.
White House economic adviser Larry Kudlow told reporters at the White House on Thursday that a meeting between the two leaders at the global gathering in Buenos Aires is under discussion.
Would that be a glimmer of hope? Chinese internet stocks have jumped a little bit at opening today on the report of Trump’s possible meeting with Xi at the G20s.
But Financial Times today reports that US officials have warned China that Donald Trump will not engage in trade talks with Xi Jinping at next month’s G20 summit if Beijing does not produce a detailed list of concessions, according to three people briefed on negotiations between the countries.
By Cloudy Seagail and staff editor