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Hang Seng freefalls to 13-year-low as Xi secures unprecedented power


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The Hang Seng tumbled to its 2008 Global Financial Crisis low, and the yuan hit a 14-year-low after China announced a new leadership team.

1666667633846.jpgSource: Bloomberg
 
Hebe Chen | Market Analyst, Melbourne | Publication date: Tuesday 25 October 2022 

Hong Kong’s Hang Seng Index has its steepest fall since the 2008 Global Financial Crisis. Meanwhile, the offshore Chinese currency yuan hit a 14-year-low after China announced a new leadership team from the twice-decade Communist Congress Meeting.

The fact that Xi has secured stronger and highly-concentrated power over the world’s second-largest economy has deepened global investors' concerns.

What happened?

China’s week-long 20th Communist Party Congress meeting ensured that Xi Jinping secured a third term as the nation’s leader with the support and strength of his supporters.

Out of the seven members of the Politburo’s Standing Committee, Li Qiang, Xi’s most loyal supporter, is set to become the next Premier. Mr Li is also well known for strictly locking down the 26 million-populated city of Shanghai for over two months.

In contrast, the current Premier, Li Keqiang, who is widely viewed as a market-oriented leader in contrast to Xi’s state-controlled economy, has been removed from the senior leadership team.

Why are global investors are concerned?

The message from the market’s brutal reaction on Monday is clear: international investors are becoming increasingly weary of Xi and his policies.

Looking back on the past five years, Xi’s policy objectives have delivered a number of 'unwelcomed surprises.' From a technology clampdown to the notorious Covid-zero policy, all surprises have negatively affected China's economy which used to out-grow the west.

Since Xi took office in 2013, China’s GDP growth has been continuously declining from above seven percent to around four percent.

The World Bank is even projecting China’s GDP to grow only 2.8% this year, reasoning that the nation’s strict commitment to its Covid policy had disrupted its industry as well as domestic sales and exports.

Now, with the new leadership packed with Xi’s allies, the chance for these concerns to be addressed has become slimmer. With only one voice to rule the country, it’s foreseeable that a more isolated, inward-looking China could create even more challenges for its long-term business partners.

1666667633920.jpgSource: TradingEconomics

Hang Seng technical analysis

The Hang Seng Index shocked global investors on Monday with a jaw-dropping seven percent intraday decline, erasing all the gains made for the past 13 years. It was the largest dip since 2008. The Hang Seng Tech Index plunged by more than nine percent to a new record low and the offshore Chinese currency also dipped to a new low since it started trading in 2010.

For the Hang Seng Index, the fall on Monday has broken through the last tier of support (2011 low) and greatly increased the possibility of moving further down to the 2008 GFC low below 14000.

Any rebound will meet the challenge from 15800.

Hang Seng weekly chart

1666667633928.JPGSource: IG

USD/CHN weekly chart

1666667633937.JPGSource: IG

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