(Bloomberg) — Chinese stocks posted their worst start to a year in nearly a decade as investors brace for economic uncertainties with weaker-than-expected manufacturing data and an expected increase in tariffs.
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The CSI 300 Index (000300.SS) closed down 2.9% on Thursday, its biggest decline on the first trading day of the year since 2016. The Hang Seng China Enterprises Index (^HSCE) fell 3.1%.
The losses suggest sentiment remains fragile even after Chinese stocks posted their first annual advance last year since 2020. There is a lack of confidence about the country’s economic recovery, with a Caixin manufacturing survey falling short of estimates and Donald Trump’s threat to raise tariffs looming. Horizon. On the occasion of his inauguration later this month.
The sharp decline in the CSI 300 in the final trading session of 2024 also pushed the gauge below its 60-day moving average, a closely watched technical threshold, which would likely lead to further selling by some funds. Several large financial stocks including the Industrial and Commercial Bank of China and the Agricultural Bank of China traded without profits, exacerbating the indexes’ losses.
“It is a bit worrying that investors are starting the new year in a cautious way because this is happening after more clear stimulus signals from Beijing during policy meetings in December,” said Humin Lee, chief macro strategist at Lombard Odier. “China’s fundamental momentum remains very fragile, and it will take some effort on the part of the authorities to change the conversation about the country’s deflation risks in the medium term.”
While Chinese stocks rose 15% last year in rare annual gains, the bulk of the increase came in the weeks following the stimulus campaign in late September. Since then, the market has been trading within a range, as investors wait for further significant stimulus to push the market higher.
Following the Central Economic Work Conference in December, China signaled more public borrowing and spending in 2025 as the policy focus shifts to consumption, in an attempt to repair the weak link in the economy as looming US tariffs threaten exports.
While the announcement gave investors hope that Beijing is intent on reviving the economy, some market watchers suggest there will be a lull in stimulus until March when the so-called two sessions – China’s annual legislative session – are held.
Traders may want to limit exposure to China in their portfolios as they position for 2025, according to Charu Chanana, chief investment strategist at Saxo Markets.
Global funds had already become net sellers of Chinese stocks in November after two months of net inflows, Morgan Stanley analysts wrote in a December 4 note. Passive funds turned to outflows after heavy inflows in October, while active funds accelerated net outflows in November. They wrote.
As economic concerns persist, Chinese 10-year bond yields hit a new record low on Thursday. The People’s Bank of China pumped massive liquidity into the market at the end of 2024 without using high-level stimulus, as officials maintain policy space before Trump returns to office.
Stock trading volume was notable in Hong Kong on Thursday as markets reopened after the holiday, with the Hang Seng Index (^HSI) 50% larger than the average over the past 30 sessions. Meanwhile, trading value on the Shanghai and Shenzhen stock exchanges has remained below 1.5 trillion yuan ($206 billion) in recent days, suggesting that traders are choosing to remain on the sidelines until the catalysts become clear.
“Today’s losses appear to be largely driven by trading, as there were a few accumulating gains that would have stimulated selling as technical factors broke out,” said Liu Dejun, fund manager at Beijing Kaiyuan Private Fund Management. “Many are also talking about avoiding excessive exposure to stocks ahead of Trump’s inauguration, which is around the Lunar New Year holiday.
-With assistance from Audrey Wan and John Cheng.
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