Chinese stocks in Hong Kong tumbled as disappointing trade data added to investor concerns about the strength of the economic recovery and as worries about the property sector intensified.
The Hang Seng China Enterprises Index slid as much as 2.6%, with the biggest losers being property-related names like Country Garden Services Holdings Co. and Longfor Group Holdings Ltd. Country Garden hasn’t paid two dollar bond coupons due Aug. 6 worth a total of $22.5 million, Reuters reported, citing the sixth-largest Chinese developer by sales.
China’s economic recovery has witnessed increased signs of strain, with data Tuesday showing exports - a strong growth engine that supported the economy during the pandemic - fell for a third straight month in July. Imports plunged. Meanwhile, data on Wednesday will likely show consumer prices declined in July, which would be the first time since late 2020 that both consumer and producer prices register contractions.
“Deflation is a significant risk that reflects weak demand and it will impact earnings for corporate China,” said Marvin Chen, an analyst at Bloomberg Intelligence. “The upside is that the weaker inflation numbers leave the door open for more monetary easing.”
The boost China stocks received after Beijing showcased its determination to shore up the economy at the Politburo meeting at the end of July is fading fast. Foreign investors, who piled into shares onshore following the event, are selling again as economic data point to more weakness, and the effects of pro-growth policies remain to be seen.
Overseas funds were net sellers of 7.6 billion yuan ($1.1 billion) via trading links with Hong Kong in Tuesday’s session, set to be the highest since at least the Politburo meeting. They sold shares worth 2.5 billion yuan the previous day. The onshore CSI 300 Index was down 0.4%.
“People’s patience on stimulus is also waning,” said Willer Chen, senior research analyst at Forsyth Barr Asia Ltd.
Concerns about the property sector are once again at the fore, with short sellers swarming Country Garden after builder scrapped a share-sale plan last week. The stock tumbled over 10% as traders assessed the Reuters report.
READ: Country Garden Shares, Bonds Sink Amid Report of Missed Payment
Deflation Threat
Producer prices in China have been contracting on a year-on-year basis since October 2022, largely due to falling prices for commodities like coal and crude oil.
China has “goods deflation and services inflation,” Mohammed Zaidi, investment director at Nikko Asset Management, said in a Bloomberg Television interview. He sees earnings estimates for the second half of the year as still high, and potential that they’ll be lowered both for the rest of 2023 as well as 2024.
Some other investors are more sanguine as poor economic data raises expectations of policy stimulus.
Equity declines mean that China’s market is “one of the cheapest in the region,” Zhikai Chen, head of Asia and global EM equities at BNP Paribas Asset Management, said in a Bloomberg Television interview. Follow-up policy moves to support the economy and consumption are expected, he said.
READ: China Deflation Threat Grows as Firms Cut Prices to Survive (1)
--With assistance from Abhishek Vishnoi, Haidi Lun, David Ingles and Yvonne Man.
