China's Hang Seng Down Over 50% From Peak

The chart for the Hang Seng could reasonably be mistaken for that of bitcoin.

When will the bloodbath end for the Hang Seng?

The Chinese stock market is looking increasingly sick, as the Hang Seng continues its slide.

Six years ago, the Hang Seng put in an all-time high of 33,484. Today, it is trading just below 15,000. In the last three years, it has lost almost 50% of its value, and in the last week alone it is down 5.6%.

The index is the main proxy for the Chinese market, and its 82 constituent companies comprise around 58% of the capitalization of the Hong Kong Stock Exchange. So, what's going on?

Global Pessimism

A 50% decline is no ordinary correction or bear market (having more in common with the crypto world than a major global stock market). Moreover, this is not a bubble pop pattern; the downward slide has been going on for many years. The consistent falls reflect a pervasive global pessimism about China on the part of international investors.

The index is now at risk of falling towards the lows of the Global Financial Crisis, 15 years ago. This is at a time when US and Japanese indices are breaking all-time highs. Clearly, something is very wrong, or rather several things are wrong. Deepening deflation, the country's property crash, uncertainty about the US's interest rates in the coming months, and the more positive performance of other markets are some of the factors in play.

Geopolitical tensions also play a part. While AI is holding out the prospect of a productivity boom, US export controls mean that China is unable to secure the new chips it needs to compete favorably.

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How Healthy Is China's Economy?

The Hong Kong-trading Hang Seng is typically regarded as a better proxy for China's economy than stocks trading in Shanghai and Shenzhen (although the SSE Composite is scarcely faring better). These are subject to intervention of various kinds from Chinese regulators, including bans on short selling and occasionally direct intervention from the state.

The length and depth of the bear market shows just how much confidence in China's economy has eroded over the last year. Despite the People's Bank of China easing monetary policy to help the situation, more powerful measures may be needed to stop the bloodbath in Chinese stocks and turn around a fragile and bruised economy.

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