China investors fear autocracy risk 📉
Today we are seeing a massive discount in Chinese stocks. Xi Jinping's consolidation of power has raised concerns and worsened investor sentiment:
- China's most important decision-making body, the Politburo Committee, has been filled by Xi with six of his loyalists which has become the immediate cause of the crash and may be a harbinger of authoritarian rule;
- With such powerful influence over the country's most important body, Xi can resist criticism and maintain active, radical 'zero Covid' solutions that burden the Middle Kingdom's economy and development. The party can also maintain a restrictive attitude toward private entrepreneurs and technology companies;
- Xi Jinping, speaking at the Great Hall of the People on Sunday. Investors fear harsh political moves by China's leader in terms of military intervention in Taiwan, among other things. The international market shares concerns around China's tightening international policy, although European indices are doing well today, with contracts suggesting a higher opening for US indices;
- Xi Jinping's rivals have departed, with the president unprecedentedly elected to a third term despite exceeding the age at which previous presidents gave way to younger candidates;
- Late economic data from China pointed to a prolongation of the real estate crisis (a major drag on China's indexes recently), decelerating retail consumption in September and a rising unemployment rate. The economic recovery in Q3, although it occurred, the readings were far from euphoric levels.
Shares of Chinese companies listed in the US are credited with several percent sell-offs before the market opens. The stocks of Tencent (TME.US) and Alibaba (BABA.US) are losing mightily. The Krane Shares China Internet Index ETF (KWEB.UK), which gives exposure to Chinese companies doing business on the Internet, is losing nearly 12%. Source: Bloomberg
CHNComp Index, W1 interval. The index is losing nearly 8% today and is near the minimums of the 2008 financial crisis. The RSI has dropped around 23 points, signaling an oversold condition. The index of companies nootted on the Hong Kong Stock Exchange, HKComp, is doing similarly dismally. Source: xStation5
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