China's Reopening Effect Fades, Stock Market Weakens Amid Economic Slowdown

HSCEI Down 19.59% This Year
CSI300 Index Also in Decline
Economic Slowdown Due to US-China Conflict and Real Estate Slump
Stock Market Rebound Uncertain Amid Ongoing Geopolitical Crisis

The Chinese stock market is showing weakness as the Chinese economy, expected to stretch and recover with the reopening (resumption of economic activities), is exhibiting a slower recovery than anticipated. It is forecasted that the stock market will find it difficult to rebound until the US-China conflict enters a resolution phase or a strong economic recovery is confirmed.

On the 29th, the Hong Kong Hang Seng China Enterprises Index (HSCEI) closed at 6251.04, down 1.30% from the previous trading day. The sharp 8.10% plunge in the stock price of Meituan, a Chinese shopping platform, due to forecasts of a slowdown in the business conditions of e-commerce companies, is analyzed to have significantly influenced the index's decline.

[Image source=EPA Yonhap News]

The HSCEI is an index composed of blue-chip Chinese state-owned enterprises listed on the Hong Kong Stock Exchange. After peaking at 7773.61 on January 27, it turned bearish and fell by 19.59% over four months.

On the same day, the Shanghai-Shenzhen 300 (CSI300) index also closed down 0.45% at 3833.61, ending in a downward trend. The CSI300 index peaked at 4201.35 on January 30 and has been declining since mid-April. It has dropped 8.97% over the past four months since the beginning of this year.

The Chinese stock market is showing weakness as the Chinese economy has struggled to recover even after reopening. Chinese industrial companies saw profits decrease by 20.6% year-on-year in the first four months of this year due to low demand and margin pressure. In April, industrial company profits fell 18.2% year-on-year, a slower decline compared to March's 19.2%, but the recovery remains slower than expected.

Chinese authorities also expect economic growth to slow this year and have set the economic growth target at around 5%, the lowest ever. This is the lowest figure since 1994. Previously, the market expected the Chinese government to set a target exceeding 5%, considering the base effect following the end of the zero-COVID policy. However, with increasing US pressure on advanced technology sectors such as semiconductors, combined with internal instability factors like the real estate market slump and fiscal deficits, the Chinese government appears to have set a lower target than market expectations.

As the Chinese economy struggles to rebound, Citibank downgraded its investment opinion on Chinese stocks from 'overweight' to 'neutral' on the 26th. Mainland China stock trading volume has also hovered below 1 trillion yuan (186.54 trillion won) for more than two weeks.

Experts predict that the Chinese stock market will find it difficult to rebound unless geopolitical tensions surrounding China, including with the US, are resolved and economic recovery is supported. Marvin Chen, an investment strategist at Bloomberg Intelligence, said, "China's domestic economic recovery has not been as strong as expected and has not been sufficient to offset concerns about a global recession. The market may become fatigued while waiting for catalysts such as monetary easing or easing tensions with the US and may look for other alternatives."

Bay Senling, Managing Director at Swiss bank UBP, observed, "Geopolitical concerns and broad economic recovery need to be achieved for investors to return to the Chinese stock market."

This content was produced with the assistance of AI translation services.