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No ‘adults in the room’: Xi Jinping catches global investors off guard

When China’s President Xi Jinping made moves to tighten his grip on power last weekend, he sent ripples of fear through global financial markets.

Analysts and fund managers expected West Including at least two moderates balances a seven-person leadership team.

“Investors envisioned a scenario in which President Xi basically got his way, but the market has some form of backlash from adults,” said Thomas Gatley, an analyst at Gavekal Dragonomics in Beijing. there will be,” he said.

“Now no one is in the room saying, ‘I need to step back a little bit,'” said Gatoray. “If everyone there is just nodding their heads, we can’t stop the stock market from falling as much as possible.”

The lack of a single medium number combined with disappointing delays in releasing economic data meant that Record selling of Chinese stocks by foreign investorsMarket participants say the impact is unlikely to go away anytime soon.

Investors withdrew a record $2.5 billion from China’s stock market on Monday, according to a Financial Times analysis, along with the Nasdaq Golden Dragon Index, which tracks China’s technology stocks, the largest and most liquid on Wall Street. It fell an unprecedented 14.4%.

This reflects a sense that Xi Jinping’s focus on national security and pandemic policy will remain unwavering, even if that means slower growth and greater losses for shareholders.

“It was a powerful cocktail [investor] Client reactions to politics, optimism entering the weekend. . . Mohammed Apabai, global market head of Asian trading strategy at Citigroup, said macro data and bull markets were only being overtaken by local, regional and foreign selling.

Apubhay said some Chinese stocks may enjoy a “short-term rebound,” but that “higher geopolitical risk premiums from investors are priced in, so price gains will not be used for selling.” It is very likely,” he added.

This week, Morgan Stanley sharply lowered its forecast for the MSCI China Index, previously forecasting a 64% rise, but now expects it to rise 16% by next June. Chinese equities have underperformed their global peers this year, with the benchmark CSI 300 index down about 35% after accounting for the depreciation of the Chinese yuan.

This is largely thanks to President Xi’s Corona Zero policy, which has spurred long and devastating lockdowns of major cities, including Shanghai and Shenzhen, as the rest of the world learned to live with the virus.

Such confusion A dramatic slowdown in real estate and technologytwo sectors central to China’s rapid economic growth.

The FT’s calculations, based on currency data, show net long positions in Shanghai- and Shenzhen-listed stocks so far this year are close to zero, on track for the worst year on record.

Xi Jinping’s decision to hand over market-oriented candidates like rising star Hu Chunhua to China Political Bureau Standing Committee delivered another blow.

Tim Mo, head Asia equity strategist at Goldman Sachs, told Congress that client investors had expected Xi to secure a third term, but more than two moderates remained. He said he was looking for signs of being appointed to the committee.

“The shock was when six Xi Jinping supporters were elected, which means they were wiped out,” he said.

Moe added that he has appointed hardliners to the party’s military committee. Among them was He Weidong, who conducted military exercises to besiege Taiwan after U.S. representative Nancy Pelosi visited the island earlier this year, making customers uneasy. was seen as heightening the risks around a stronger military policy,” he said.

Column chart of market capitalization of the constituents of the Nasdaq Golden Dragon Index ($ billions)

Traders in Hong Kong said the late-week gains by tech companies such as Alibaba and Tencent were driven in part by market participants who were liquidating positions betting on the downside. Offshore institutions have not reversed their exits from mainland equities earlier in the week, his FT analysis of exchange data shows.

Gavekal’s Gatley cited China’s education industry as an example of what happens when there is no resistance to punitive policy decisions. Shares of once-profitable online tutoring firm New Oriental have fallen 87% from their all-time highs, even after Beijing effectively banned tutoring last year.

For some investors, investing in China is no longer viable. A fund manager who travels between the US and Asia said he would no longer invest in Chinese companies after the party announced its new leadership line-up.

“[Xi] We wiped out all the smart people who knew how to grow the economy with puppets,” said the fund manager.

“I think there were still people who hoped this was just a cyclical step to secure his third term in office, but the purge has made it completely clear that this is a permanent ideological shift. It shows and you can’t go back.”

https://www.ft.com/content/6589ecaa-b609-4714-b966-d498b03a2d88 No ‘adults in the room’: Xi Jinping catches global investors off guard

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