CSI 300 Down 1.4%, HK Stocks Fall 2% Amid Economic Woes

Key Takeaway

• Chinese stocks fell sharply post-Dragon Boat Festival, with the CSI 300 Index down 1.4% and Hong Kong shares dropping 2%.
• Weak travel spending and property sector concerns are dampening investor sentiment, raising doubts about China's economic recovery.
• Broader Asian markets also declined as investors await key U.S. economic data, including inflation figures and a Federal Reserve meeting.

Chinese Stocks Decline Post-Holiday

Chinese stocks experienced a notable decline as markets reopened following the Dragon Boat Festival holiday. The CSI 300 Index, which tracks mainland shares, fell by as much as 1.4%, while a gauge of Hong Kong-listed Chinese shares dropped by up to 2%, making it one of the biggest decliners in Asia. The downturn was driven by several negative developments, including weak travel spending and renewed concerns over the property sector, which have cast doubts on the sustainability of China’s economic recovery.

"The recent weekend holiday didn’t see as strong consumption as the previous May golden week, and weekly property sales are weak though that’s also volatile," said Xin-Yao Ng, director of investment at abrdn. He added, "These follow on from weak macro readings earlier like the NBS PMI and imports."

A measure of companies listed on the Shanghai stock exchange approached a key psychological level, nearing a fall below the 3,000 mark for the first time since late March. This level had previously held firm on three occasions in March and April. A definitive breach could potentially lead to a further unwinding of gains made in February.

Property Sector Concerns

The property sector remains a significant concern for Chinese equities. The weak property sales reported during the holiday period have added to the ongoing worries about the sector's health. This has been compounded by broader macroeconomic challenges, including disappointing data from the National Bureau of Statistics (NBS) Purchasing Managers' Index (PMI) and import figures.

"The Hang Seng Index remains weak, with market participants wanting to see more evidence of a recovery trend ahead, but incoming data has been more mixed than assuring," noted Jun Rong Yeap, a market strategist at IG Asia Pte. He emphasized that investors are closely watching for more positive signs of recovery, particularly in the property sector.

Additionally, the market is awaiting the European Commission’s decision on provisional duties for Chinese electric vehicle (EV) makers, which has added another layer of uncertainty. Shares of EV manufacturers have been under pressure as traders anticipate the potential impact of these duties.

Broader Market Impact

The decline in Chinese stocks has had a ripple effect across Asian markets. Most regional benchmarks also fell as investors positioned themselves ahead of key economic data from the United States, including inflation figures and a Federal Reserve meeting. Benchmarks in mainland China and Hong Kong headed for their lowest closing levels since April.

Treasuries saw a slight increase in Asia, while Bloomberg’s gauge of the dollar advanced for the fourth consecutive day. In contrast, Australian bonds dropped, reflecting a catch-up with Friday’s move in U.S. Treasuries as traders adjusted their expectations for Federal Reserve interest rate cuts.

"The interest-rate guessing game goes on," said Chris Larkin at E*Trade from Morgan Stanley. "Even the friendliest inflation numbers probably won’t push the Fed to act any sooner than September."

Street Views

• Xin-Yao Ng, abrdn (Bearish on Chinese market):

  "The recent weekend holiday didn’t see as strong consumption as the previous May golden week, and weekly property sales are weak though that’s also volatile. These follow on from weak macro readings earlier like the NBS PMI and imports."