Chinese Stocks in Hong Kong Plummet to Two-Decade Low Amid Economic Uncertainty and Tech Giants' Drag

Chinese stocks in Hong Kong are sliding towards their lowest point in nearly two decades, as the absence of new economic stimulus and market support measures heightens investor pessimism. 

On Monday, the Hang Seng China Enterprises Index dropped by as much as 3.6%, inching closer to levels not seen since 2005. This marked it as one of Asia’s weakest key indexes. Major Chinese tech companies such as Meituan and Tencent Holdings Ltd. were among the main contributors to the decline.

Wall Street’s Record High vs. Hong Kong’s Slide

The ongoing sell-off in Chinese shares contrasts sharply with the more positive sentiment on Wall Street, where the S&P 500 Index reached a record high on Friday for the first time in two years. The downturn in Chinese stocks also follows the decision by China’s commercial lenders to keep their benchmark lending rates unchanged, a move that comes after the central bank’s recent choice to maintain borrowing costs, potentially disappointing investors seeking more aggressive stimulus.

The latest declines may be attributed to a lack of catalysts in the near term and outflows to more attractive alternatives in the region.

The divergence between global markets surging in the chip sector, an area where China and the rest of the world may operate on separate tracks due to geopolitical tensions.

The mainland Chinese market reflects a similarly fragile mood, with the benchmark CSI 300 Index dropping as much as 2.3% on Monday, the most significant decline since late 2022.

This recent slump coincides with increased turnover on a few exchange-traded funds tracking key indexes, hinting at possible state-led buying behind the unusual spike. 

The onshore benchmark concluded Monday 1.6% lower, intensifying pressure on a significant volume of snowball derivatives – structured products offering bond-like coupons within a specific trading range. 

The CSI Smallcap 500 Index, a pricing reference for some of these products, fell as much as 3% on Monday, approaching an earlier estimated threshold that might trigger widespread losses on the snowballs.

The gauge of Chinese stocks listed in Hong Kong has seen a 13% decline this year, while the S&P 500 has gained 1.5%. The CSI 300 has experienced a 5.1% decrease.

Factors Behind Chinese Stock Downturn

Since the beginning of 2024, multiple factors have contributed to the downturn in Chinese stocks. This includes a deepening housing slump, persistent deflationary pressures, Beijing’s reluctance to implement aggressive monetary and fiscal measures to stimulate growth. Uncertainties surrounding the trajectory of US interest rates and concerns about increased regulatory oversight have further fueled pessimism.

Speaking at a briefing on Friday, Eva Lee, the head of Greater China equities at UBS Global Wealth Management, emphasized that the People’s Bank of China’s monetary easing benefits have already been factored in. She stressed the need for more robust policies to rejuvenate the stock market.