After the Communist Party Congress concluded, Chinese tech companies listed in Hong Kong and New York suffered from heavy selling on the first trading day due to a slump in stocks, revealing the fear of investors over President Xi Jinping securing his third term in power, according to media reports.
It’s noticeable that Chinese equities usually perform well after the conclusion of party congresses, but not so much this time. One of the key reasons for this is that the 20th Party Congress saw the ascent of leaders to the country’s highest decision-making body, the Politburo Standing Committee, who lack reform-mindedness, reported Nikkei Asia. These leaders chosen by Xi Jinping himself are keen on ideology and politics. It is in sheer contrast to the retiring policymakers, who were more economic and market-minded.
There was a ray of hope in China’s tech sector as the borders were opening. A boost in the economy was also predicted, but the appointments made in the politburo were not supportive of these aspirations. Xi Jinping’s appointments to the highest decision-making body were aimed towards tightening his grip over the body rather than a decision based on the larger good of the country’s economy. An index which tracks major Chinese companies traded on US exchanges, namely the Nasdaq Golden Dragon China Index, plummeted by 20% on the concluding day of the Communist Party Congress, reported Nikkei Asia.
In Hong Kong, the Hang Seng Tech Index sank over 9.6%. Overall, the indexes have dropped more than 45% this year. Shares in Alibaba Group Holding, China’s best-known tech company, fell below the USD 68 price of its IPO in 2014. Apparently, what happens is that once the leadership transitions take place, the market predicts growth. As per Goldman Sachs, an American multinational investment bank and financial services company, the growth is anticipated because the market expects that the incoming leaders will prioritise economic growth. However, Xi’s favourites held the posts in the politburo and were too focused on ideology and politics. Lorraine Tan, Morningstar’s director of equity research in Asia, said the sell-off reflected disappointment in the new makeup of the standing committee.
She noted that the standing committee continued to take a cautious approach to dealing with COVID, which has been looked upon by big Chinese companies as a demotivating factor as it causes huge unpredictability in their businesses.
