Capital flows that had been concentrated on China due to expectations of its reopening (economic restart) are now faltering. This is because the Xi Jinping risk is being reemphasized among global investors ahead of the Two Sessions, the official launch stage of Xi Jinping's third term in power. There is also analysis that the disappearance of Bao Fan, chairman of China Renaissance and a giant in China's financial sector, has triggered increased anxiety over regulatory crackdowns by authorities on China's financial industry.
On the 27th (local time), Bloomberg reported that the Nasdaq Golden Dragon China (HXC) index entered a bear market, falling 16% from its peak last month in the New York stock market. This decline came after a sense of relief that regulatory crackdowns on China's financial industry had ended and expectations of economic reopening, following a surge of over 80% from the October low last year. The HXC index tracks the stock prices of about 90 large Chinese companies listed on the New York Stock Exchange. The 16% drop in the index over a month, rather than individual stocks, reflects the sharp decline in the share prices of China's flagship companies.
During this period, the market capitalization of the top 63 Chinese companies listed on the New York Stock Exchange evaporated by $190 billion (approximately 250.42 trillion KRW). Alibaba, China's largest e-commerce company listed on the NYSE, announced better-than-expected results for the fourth quarter of last year, but its stock price has not escaped a bearish trend. Alibaba's stock price has repeatedly fallen, dropping more than 5% from the 24th to the current day. Baidu, China's largest search engine company listed on Nasdaq, also plunged more than 13% since the 7th. Marvin Chen, a Bloomberg analyst, said, "Despite earnings surprises, Alibaba and Baidu are showing sluggish stock performance," adding, "The rally in Chinese tech stocks is quickly fading."
American investment bank JP Morgan has also decided to significantly reduce China's weighting in the Asia Credit Index (JACI) to reflect the Xi Jinping risk. JP Morgan plans to cut China's weighting in JACI from the previous 43% to 30%, while increasing the weightings of Japan and Australia as alternative indices. JACI is an index widely used as a key benchmark by global bond funds during bond investment and is regarded as an indicator that exerts considerable influence on global bond investors.
This market cooling is interpreted as a result of anxiety over an unpredictable business environment. Bloomberg analyzed that concerns about President Xi Jinping's third term are growing ahead of the Two Sessions (the National People's Congress and the Chinese People's Political Consultative Conference) opening on the 4th of next month. It added that reports of the sudden disappearance of Bao, chairman of China Renaissance, followed by investigations by authorities, have amplified the sense of crisis that President Xi's regulatory crackdown on China's financial industry has not ended.
Geopolitical tensions between the U.S. and China are also escalating due to incidents such as the 'surveillance balloon' affair and the possibility of the Chinese government supplying lethal weapons to Ukraine, which is affecting the investment environment. Recently, there have been continuous warnings and indications that China is conducting specific discussions with the Russian government to provide lethal weapons such as drones and ammunition, escalating tensions between the U.S. and China. U.S. Secretary of State Antony Blinken directly warned during a meeting with Wang Yi, a member of the Chinese Communist Party's Politburo, at the Munich Security Conference (MSC) in Germany on the 18th that there would be consequences if China provided "material support" to Russia. Ned Price, spokesperson for the U.S. State Department, also pressured China on the 22nd, saying, "We have not yet seen evidence that China has directly supplied weapons to Russia, but we do not believe China has removed this from the table."
Jenison Associates, a New York-based investment advisory firm, evaluated that "Given China's growth slowdown outlook and regulatory risks, it will be difficult for China's financial investment market to regain its previous standing."
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