Xi Jingping’s consolidation affects Chinese stocks

China’s stock markets suffered sharp falls on Monday due to nervousness about the third term of Chinese leader Xi Jinping, which even overshadowed the growth data of the Asian country’s Gross Domestic Product, which was higher than estimated by the market.

The Hang Seng, the main stock index of the Hong Kong Stock Exchange, fell 6.36%, its biggest daily loss since October 2008, reaching levels not seen since 2009, at 15,180.69 points.

For its part, the Shenzen technology index ended the session 2.05% below the previous day. While the Shanghai stock benchmark fell 2.02 percent.

Not even the positive data for China’s GDP, which closed with an increase of 3.9% in the third quarter of the year, helped the performance of the stock markets of that nation.

Asian indices posted “losses after China’s leader Xi Jinping consolidated his power in his third consecutive term of office, promoting political allies who share an ideology in favor of greater government control”, explains an analysis of Basic Bank.

This last point raised concerns about the future decisions of the Asian country.

“The ratification of Xi Jinping adds uncertainty, since Chinese government policies have begun to move away from a model focused on investment and begin to give hints of granting greater powers to parastatal companies, this worries private companies because they could see their interests threatened and benefits in such an economy by not having light of the coming economic policy”, explained Alain Jaimes, senior analyst at Signum Research.

“The new list of China’s top leaders, packed with allies of Xi Jinping, has some economists fearing a further erosion of checks on power by a Chinese leader who has overseen the largest expansion of state control over the economy in decades. ”, indicated a Morningstar report.

However, for Richard Tang, an analyst at Asia Capital Research at Julius Baer, ​​the newly formed Standing Committee is made up mainly of President Xi’s protégés, which may lead to bolder reforms.

“We hope the cabinet will focus on building ‘Chinese modernization.’ The Party Congress largely reaffirms our view on China, in which we emphasize selecting specific stocks and themes for returns rather than investing in the broader market. We favor the environment, mass consumption and smart manufacturing as the main beneficiaries of the policy”, he added.

bad day

Among the Chinese companies that registered the most falls on Monday were Alibaba, the e-commerce company lost 11.42%; also Tencent that fell 11.43%, both on the Hong Kong Stock Exchange.

For its part, BYD, the manufacturer of rechargeable batteries, fell 4.03% on the Shenzhen Stock Exchange; JD.com fell 13.17% and Baidu fell 12.20% percent. Also on the list was Xiaomi, the smartphone maker, whose shares fell 8.65% on the Hong Kong Stock Exchange.

The same negative sentiment was reflected towards the shares of Chinese issuers listed on the New York Stock Exchange.

The American Depositary Receipts (ADRs) of Pinduoduo, the technology company, fell 24.61%, while those of NIO, an electric vehicle company, fell 15.70 percent.

More losses were on the side of Tencent (-14.17%); JD.com (-13.02%), an e-commerce firm; Alibaba (-12.53%); and the search engine Baidu (-12.58%).

The senior analyst at Signum Research added that the case of China is complex because, being an economy considered by many to be the “factory of the world”, due to its production capacity, it has begun to show strong signs of a slowdown in its economic activity.

The foregoing, “not only because of its strict confinement measures, but because the real estate market is in a delicate environment and could generate potential pressure on its financial system.”

Given the conditions of globalization, there is always a contagion effect between markets. However, the drop in Chinese companies could represent a substitution effect and give a boost to shares of North American companies, according to the specialist.

He explained, however, that this would be in the short term, since if a financial crisis were triggered in China, due to the weak situation of its real estate market, it would undoubtedly transfer to multiple stock markets.

The economy of the Asian country is the second largest in the world.

judith.santiago@eleconomista.mx