[Summary] Major Plunge of Chinese Companies in US Stock Market Following Xi Jinping's Third Term Launch... Market Cap Drops by 106 Trillion Won

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] The so-called 'Xi Jinping 3rd Term,' filled with loyalists close to Chinese President Xi Jinping, has launched, causing the market capitalization of Chinese companies listed in the U.S. to evaporate by a staggering $73.4 billion (approximately 105.9896 trillion KRW) in just one day. This is a result of a wave of sell-offs centered on tech stocks amid growing concerns over increased investment uncertainty.

According to Dow Jones Market Data, on the 24th (local time), the Nasdaq Golden Dragon China Index, composed of 65 Chinese companies listed in the U.S., closed down more than 14% compared to the previous session, marking its lowest level since April 2013. It is estimated that the market capitalization decreased by as much as $73.4 billion compared to the previous trading day.

By stock, the biggest declines were seen in big tech stocks that President Xi has strongly regulated. Alibaba, China's largest e-commerce company, plunged more than 19% intraday before closing down 12.51%. Another e-commerce company, Pinduoduo, dropped 24.61%. Accordingly, Alibaba's market capitalization shrank from $187.79 billion last Friday to $166.34 billion on the day, and Pinduoduo's (24.6%) market capitalization contracted from $73.91 billion to $55.72 billion.

This market reaction followed the 20th National Congress of the Communist Party of China (Party Congress), which confirmed President Xi's third term, and the first plenary session of the 20th Central Committee of the Communist Party of China held the previous day, where the Politburo Standing Committee, the top leadership, was filled with Xi's closest aides. Investors, fearing a regulatory backlash from the authoritarian regime, collectively sold off Chinese stocks, causing the Hong Kong stock market to plunge to its lowest level since April 2009, with selling pressure continuing in the New York stock market as well.

The Wall Street Journal (WSJ) reported, "As President Xi consolidated control over the ruling Communist Party and filled the leadership with loyalists, global investors perceived increased risks in China, triggering a frenzied sell-off," adding, "The market capitalization of the five largest Chinese companies listed in the U.S. disappeared by more than $52 billion in one day."

The market views President Xi's recent years of strengthening regulations in the technology sector and maintaining a strict zero-COVID policy that suppresses the private economy as unlikely to change or be revised in the future. Additionally, the fact that most of the new leadership personnel have little experience leading economic policy is also seen as a negative factor.

In particular, this sharp decline stood out even more as the major indices of the New York stock market recorded gains of around 1% amid the big tech earnings season and expectations of the Federal Reserve's (Fed) pace moderation on the same day.

Vivian Lin Surston, Portfolio Manager at William Blair Investment Management, said, "The sell-off on this day reflects investors' skepticism about China's future economic policies under President Xi, who shows little pro-business tendencies, and the loyalist leadership." However, Marco Kolanovic, Chief Global Market Strategist at JP Morgan, pointed out that this sell-off is unrelated to corporate fundamentals and rather viewed it as a buying opportunity.