People wearing face masks cross the road in Hong Kong’s Wan Chai district on February 16, 2021.
Zhang Wei | Chinese news site | Getty’s paintings
Hong Kong’s benchmark index entered the intraday bear market on Wednesday, offsetting gains from a rebound after China reopened.
The Hang Seng Index reached the session low of 18,105.78. That is 20.2% lower than the 52-week high of twenty-two,688.9 reached on January 27. A technical bear market is defined when prices fall 20% below their recent highs.
Hong Kong tech stocks were among the many primary falls within the index overall, including the web company NetEase and e-commerce platforms Meituan AND JD.com. Alibaba lose almost 3%, Baidu decreased by greater than 4%. Bilibili decreased by 6%.
The Hang Seng Tech Index has already fallen by greater than 25% in comparison with the January peak. That is in stark contrast to the reopening optimism that when propelled the MSCI Asia-Pacific index to a bull market.
The Hang Seng China Enterprises Index, which measures the performance of the 50 largest and most liquid mainland Chinese corporations listed in Hong Kong, also fell greater than 21% from its January peak.
Analysts initially expected China’s economy to get well sooner and earlier than expected, but that view quickly faded after the country continued to deliver disappointing economic data.
China’s latest factory activity reading was 48.8, below the 50 points that separate growth from recession – missing the estimate of 49.4 from the Reuters poll.
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Morgan Stanley analysts said in a May 17 report that the weak reading for this production index “was a solid precursor to policy easing.” Economists told CNBC that the disappointing rebound could lead on to further government stimulus.
“If growth doesn’t speed up enough to shut the output gap, risks to social stability could increase and eventually trigger more significant stimulus,” Morgan Stanley analysts wrote in a note.
The National Bureau of Statistics noted that the purchasing manager index for big manufacturers was 50, while for smaller manufacturers it was lower. The index for service activity remained at an expansive level of 54.5, but marked the second consecutive month of declines.
Demand serious care
Citi economists wrote in a Wednesday note that the newest economic data, which falls far wanting expectations, is seen as “signs of fatigue from the initial reopening impulse.”
“Insufficient demand may now be a significant concern, and there are each cyclical and structural reasons,” they wrote, adding that “the initial momentum for the services sector after reopening could also be waning.”
Citi economists also expect the People’s Bank of China to chop mid-term lending rates by 20 basis points and reserve requirements by 50 basis points by the tip of the yr.
“We consider the Chinese economy could also be on the verge of a self-fulfilling confidence trap, and we consider strong policy motion is required,” they wrote.
“The room for fiscal easing from the budget could also be limited and we expect structural easing efforts with more efforts from the central government and quasi-fiscal tools through political banks,” they wrote.
– Evelyn Cheng of CNBC contributed to this report