A selloff in Chinese equities deepened Monday as the nation’s worsening property slump dampened market sentiment while weak economic data put pressure on the yuan.
(Bloomberg) — A selloff in Chinese equities deepened Monday as the nation’s worsening property slump dampened market sentiment while weak economic data put pressure on the yuan.
An Asian equity gauge was set for its lowest close since June as stocks fell across the region. Shares in mainland China declined while all 80 members of Hong Kong’s Hang Seng Index slipped. The CSI 300 Index, which is the benchmark of onshore Chinese shares, is now close to erasing all of the gains it made after the Politburo meeting last month amid signs of deterioration in the economy. US equity futures wiped out earlier gains to trade lower.
Country Garden Holdings Co., once China’s largest private-sector developer by sales, is in the spotlight as the company is at risk of joining a slew of defaulters if it fails to make coupon payments on two dollar bonds within a 30-day grace period. Its shares dropped as much as 16% in Hong Kong on Monday, after closing below HK$1 for the first time ever last week.
The picture is also bleak in the nation’s currency as economic data continued to disappoint. The offshore yuan hovered near its weakest level this year and is among Asia’s worst-performing currencies year-to-date.
Investors at the moment are not pricing in the possibility that Chinese officials will come in with the necessary toolkit to improve the situation, according to Yan Wang, chief emerging-market and China strategist at Alpine Macro Inc.
“There’s plenty of pessimism,” he said on Bloomberg Television. “Some of the developers obviously are trading at very depressed levels. So the market is not pricing for that.”
Recent data show China’s bank loans slid to a 14-year low, consumer and producer prices both declined, and exports slid the most since February 2020. Adding to the jitters is news that one of China’s largest largest private wealth managers missed payments on investment products sold to the nation’s high-net worth clients and corporations, stoking fears more defaults may happen in such products.
Eyes on Yen Intervention
Meanwhile, the yen steadied after breaching its year-high level of 145.07 versus the dollar as investors started to monitor for any signs the government may intervene as it did last year. The currency’s weakness came as an index of dollar strength advanced over the last four weeks with elevated Treasury yields.
“We believe the MoF will start pushing back in the 145-148 range,” Joey Chew, head of Asia FX research at HSBC Holdings Plc, said on possible intervention by Japan’s finance ministry in a note. “But if it does not, short positions on the yen will likely be rebuilt further.” Misses in Japan’s inflation and economic growth data this week may also embolden the bears, Chew added.
Treasuries extended their declines after producer prices in the US on Friday increased more than expected, threatening to help keep rates higher for longer.
“Overvalued”
The US trading session on Friday saw a slide in tech megacaps and mixed economic data left stocks weak and struggling for direction. In choppy trading, the S&P 500 closed at a one-month low with a drop of just 0.1%. The Nasdaq 100 notched its longest weekly losing streak this year, hovering around 15,000. Nvidia Corp. — which has more than tripled in 2023 — extended a four-day decline to 10%.
Bill Gross, the one-time bond king, said stock and Treasury bulls are wrong as both markets are “overvalued.” The former chief investment officer of Pacific Investment Management Co. told Bloomberg Television that the fair value of the 10-year Treasury yield is about 4.5%, compared with the current level of 4.15%.
Friday’s economic reports did little to alter swap market bets that the Federal Reserve will pause its rate hikes next month. Traders also continued to expect the central bank to signal its battle against inflation isn’t over yet.
Goldman Sachs Group Inc. economists, however, anticipate the Fed will start lowering interest rates by the end of next June, with a gradual, quarterly pace of reductions from that point.
Oil dropped amid a shift away from risk assets spurred by concerns about China. Gold steadied around the lowest level since early July.
Key events this week:
- China medium-term lending, retail sales, industrial production, fixed-asset investment, FX net settlement, Tuesday
- Japan industrial production, GDP, Tuesday
- UK jobless claims, unemployment, Tuesday
- US retail sales, empire manufacturing, business inventories, cross-border investment, Tuesday
- Reserve Bank of Australia policy minutes, Tuesday
- Federal Reserve Bank of Minneapolis President Neel Kashkari speaks, Tuesday
- China property prices, Wednesday
- Eurozone industrial production, GDP, Wednesday
- UK CPI, Wednesday
- US FOMC minutes, housing starts, industrial production, Wednesday
- US initial jobless claims, US Conf. Board leading index, Thursday
- Eurozone CPI, Friday
- Japan CPI, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 0.3% as of 1:08 p.m. Tokyo time. The S&P 500 fell 0.1% Friday
- Nasdaq 100 futures fell 0.3%. The Nasdaq 100 fell 0.7%
- Japan’s Topix fell 1%
- Australia’s S&P/ASX 200 fell 0.9%
- Hong Kong’s Hang Seng fell 2.4%
- The Shanghai Composite fell 1%
- Euro Stoxx 50 futures fell 0.4%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.1% to $1.0933
- The Japanese yen was little changed at 144.92 per dollar
- The offshore yuan fell 0.2% to 7.2747 per dollar
- The Australian dollar fell 0.5% to $0.6466
Cryptocurrencies
- Bitcoin fell 0.1% to $29,365.95
- Ether fell 0.4% to $1,845.62
Bonds
- The yield on 10-year Treasuries advanced one basis point to 4.17%
- Japan’s 10-year yield advanced three basis points to 0.615%
- Australia’s 10-year yield advanced eight basis points to 4.19%
Commodities
- West Texas Intermediate crude fell 0.9% to $82.48 a barrel
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Brett Miller and Wenjin Lv.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.