Chinese shares broadly tumbled as investors were spooked by a setback for a U.S. economic plan that had been expected to boost climate spending, and Beijing’s plan to bar mainland traders from a stock link with Hong Kong.
Hong Kong’s Hang Seng China Enterprises Index fell as much as 2.5% to the lowest in more than five years, while the ChiNext Index closed 3% lower on the mainland, the steepest decline since late July. A Bloomberg gauge of China real estate developers lost 3.2% to the lowest since Feb. 2017.
The MSCI Asia Pacific benchmark was down as much as 2%, as investors fretted over fresh lockdowns to slow the new omicron variant. U.S. Senator Joe Manchin’s shocking rejection of President Joe Biden’s economic plan that promised a record $550 billion funding to tackle climate change added pressure ahead of the Christmas holiday.
Also hurting Chinese shares was a plan by the country’s securities regulator to toughen restrictions on mainland investors trading onshore equities via the links with Hong Kong to tackle “fake foreign investors.”
“Today’s drop has been exacerbated by the regulations curbing ‘fake foreign fund’ inflows through the links, and concerns about the U.S. Market,” said Zhang Fushen, an analyst at Shanghai PD Fortune Asset Management. “The stocks falling the most today are also those most favored by momentum traders and those seeking cheaper leverage via the link.”
Electric vehicle battery makers Contemporary Amperex Technology Co. and EVE Energy Co. each fell at least 5.5%, the biggest contributors to point losses in both the ChiNext and China’s benchmark CSI 300 Index. They were followed by solar firm Sungrow Power Supply Company, which slumped 6.1%. The CSI 300 Index slipped 1.5%.
Chinese stocks traded in Hong Kong are already the worst-performing major benchmark globally this year, hammered by Beijing’s crackdown on private enterprise. The Hang Seng China Enterprises Index is down more than 25% this year through Monday, on track for its worst year since the 2008 financial crisis.
At the same time, the spread of the omicron variant has fueled fears that renewed curbs on business and travel might worsen supply chain disruptions and boost inflation.
“Omicron threatens to be the Grinch to rob Christmas,” Mizuho Bank’s Vishnu Varathan said in a report. “The jury is out, which squares with a market that prefers safety to nasty surprises.”
The U.S. government warned Sunday of a possible surge of “breakthrough infections” due to Americans traveling for the Christmas and New Year holidays.
Fed officials indicated Wednesday it might accelerate the reduction of bond purchases that inject money into financial markets and keep interest rates low. That sets the stage for the Fed to begin to raise rates next year.
Inflation has been a growing concern throughout 2021. Higher raw materials costs and supply chain problems have been raising overall costs for businesses, which have raised prices on goods to offset the impact.
Consumers have so far absorbed those price increases, but they are facing persistent pressure from rising prices and that could eventually prompt a pullback in spending. Any pullback in spending could then crimp economic growth.
Hang Seng Short (Sell)
Enter at: 22479.96