Chinese stocks trading in Hong Kong look primed for losses on Monday following a poor set of economic data that’s deepened scepticism over any near-term market recovery.
Figures released Saturday showed Chinese factory output, consumption and investment all slowed more than forecast for August, while the jobless rate unexpectedly rose to a six-month high. Home prices declined from the previous month.
The deterioration will add further pressure on equities, after a combination of weak economy, modest earnings and growing geopolitical tensions has led to a months-long slump since May. While calls are growing for Beijing to take bolder steps to revive growth, investors are doubting the longer-term attractiveness of Chinese stocks with deep-rooted issues including the state’s control over the private sector sapping their appeal.
Any reaction on Monday will be focused on Hong Kong as mainland financial markets are closed until Wednesday due to holidays. The Hang Seng China Enterprises Index has dropped 13% from the high in May. The CSI 300 Index, a benchmark for onshore equities, fell to its lowest since early 2019 last week, and is headed for an unprecedented fourth yearly loss.
“The fear is that the authorities are losing control of the economy and they won’t admit it,” said Gary Dugan, chief executive officer of the Global CIO Office. “The market looks set to go to significantly lower levels in the absence of real, substantial new policies.”
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Authorities have shown a reluctance to unleash big-bang fiscal stimulus ever since they acted to deflate a property bubble, which has led to the current crisis. Support measures such as interest rate cuts and state funds’ purchases of exchange-traded funds have done little to revive sentiment.
The result has been an exodus from the nation’s equity markets. In all, some US$6.8 trillion ($8.82 trillion) has been wiped out from the market value of Chinese and Hong Kong stocks since a peak reached in 2021.
Saturday’s figures suggest the main driver of the Chinese economy this year — bolstered by exports and government support — is losing steam. Industrial output expanded at a slower rate than economists had expected, extending a weakening streak to the fourth month, the longest stretch since September 2021.
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The economic data “probably makes the markets feel like authorities are asleep at the wheel,” said Kyle Rodda, a senior market analyst at Capital.Com Inc. in Melbourne.
The People’s Bank of China last week indicated it will step up its fight against deflation and prepare additional policies to revive the economy, after credit data showed private confidence remained weak despite previous interest rate cuts.
Still, stimulus can only go so far in China’s current business climate, according to veteran emerging-market investor Mark Mobius.
“The real problem is that the entrepreneurial impetus is missing, with lots of businessmen unwilling to invest,” he said. “It will be necessary for the government to loosen up on private enterprise restrictions and regulations so the private sector can be stimulated and help grow the economy.”
Charts: Bloomberg
