Global Courant 2023-05-31 13:28:18
People in face masks cross a street in the Wan Chai district of Hong Kong on February 16, 2021.
Zhang Wei | Chinese news service | Getty Images
The Hong Kong benchmark index dipped briefly into bear market territory on an intraday basis on Wednesday, wiping out the rebound gains from China’s reopening.
The Hang Seng index reached a session low of 18,044.86 points. That was 20.5% below the 52-week high of 22,688.9 points reached on Jan. 27. A technical bear market is defined as when prices fall 20% below recent highs. The index offset some of its intraday losses to close 1.94% lower, just outside bear market territory.
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Hong Kong technology stocks were among the biggest fallers for the overall index, including internet business NetEase and e-commerce platforms Meituan And JD.com. alibaba lost almost 3%, Baidu fell more than 4%, and bilibili decreased by 6%.
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The Hang Seng Tech Index has already fallen by more than 25% from its peak in January. That’s in stark contrast to the reopening optimism that once drove the benchmark MSCI Asia Pacific index of Asia Pacific into a bull market.
The Hang Seng China Enterprises Index, which measures the performance of mainland China’s 50 largest and most liquid companies listed in Hong Kong, is also down more than 21% from its peak in January.
Analysts had initially expected the Chinese economy to recover faster and earlier than expected, but that picture quickly faded after the country continued to deliver disappointing economic data.
The latest factory activity reading for China came in at 48.8, below the 50 that separates growth from contraction – missing the estimate of 49.4 from a Reuters poll.
Morgan Stanley analysts said in a May 17 report that a weak reading of that manufacturing measure was “a solid harbinger of policy easing.” Economists told CNBC that a disappointing recovery could lead to more government stimulus.
“If growth does not accelerate enough to narrow the output gap, risks to social stability may increase and ultimately lead to more meaningful stimulus,” Morgan Stanley analysts wrote in the note.
The National Bureau of Statistics found that the Purchasing Managers Index for large manufacturers stood at 50, while that for smaller manufacturers was lower. The services activity index remained in expansionary territory at 54.5, but marked a second consecutive month of decline.
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Citi economists wrote in a note Wednesday that the latest economic data is missing expectations by a large margin, seen as “signs of fatigue with the initial reopening momentum.”
“Insufficient demand could now be the biggest concern, and there are both cyclical and structural causes for it,” they wrote, adding that “the initial momentum for the services sector could fade with reopening.”
Citi economists also expect the People’s Bank of China to cut its medium-term lending rate by 20 basis points and the required reserve ratio by 50 basis points by the end of the year.
“We think the Chinese economy could be on the verge of a self-fulfilling confidence trap and believe decisive policy action is needed,” they wrote.
“There could be limited room for fiscal easing from the budget and we expect structural easing efforts with increased central government effort and quasi-fiscal tools through policy banks,” they wrote.
– CNBC’s Evelyn Cheng contributed to this report
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