As investors became more concerned that the poor position of China’s real estate industry may leak over into the wider economy, Hong Kong stocks entered a bear market on Friday, falling 21% from their peak around the beginning of the year.
As China’s economy struggles with slowing growth, the Hang Seng Index, which is composed mostly of mainland enterprises, has fallen. Foreign investment is low, consumer spending is down, and the property market is in upheaval after three years of draconian Covid regulations.
The Hang Seng index dropped by little over 2% on Friday and by almost 6% for the week as a whole. More than 10% of the index’s value has been lost this month.
A bear market occurs when stock prices fall by at least 20% from their previous high, and it’s a rare indication that investors have a pessimistic outlook of the economy.
The Chinese economy is under scrutiny because of a real estate crisis. The Chinese real estate behemoth Country Garden has been struck particularly hard lately, with its stock selling for less than one Hong Kong dollar per share. On Thursday, China Evergrande, another massive property developer, filed for bankruptcy in the United States, citing its inability to reach a settlement with its creditors over tens of billions of dollars in debt.
The Chinese stock market jumped in December as the government dropped its draconian “zero Covid” regulations, which had severely stifled economic activity. But when China revealed a series of worrying economic indicators, optimism of a prolonged recovery vanished. Deflation became more likely when prices dropped, retail sales and industrial output fell short, and investments in real estate dried up.
China’s exports have dropped, which has hurt the country’s economy. The value of the yuan, China’s currency, has dropped to levels not seen in years. Growth projections for China’s economy in 2023 have been revised downward by many major banks, falling short of the government’s aim of approximately 5 percent. The most up-to-date government figures show that China’s economy is expanding by roughly 3% annually.
China’s leaders have taken a number of steps to stimulate spending by individuals and lending by financial institutions. The People’s Bank of China, the country’s central bank, has lowered key interest rates to historic lows. However, these changes have not inspired additional economic activity or boosted investor confidence.
Debt is a major issue for China, especially for local governments that have a lot of reliance on the real estate industry. China’s total debt has surpassed that of the United States relative to GDP.
The stock market thus lost its momentum. Eight of the last 10 trading days in Hong Kong have seen stock prices fall.
The mainland Chinese stock market has also fallen. About 10% of its value has been wiped off the CSI 300 index since its peak in early January. This index follows the three hundred largest Shanghai and Shenzhen stock exchange businesses.