Chinese regulators rushed to reassure investors as stocks and the yuan fell
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Chinese regulators sought to reassure markets on Monday as stocks and the yuan extended declines in a difficult start to the year, following weak economic data and geopolitical turmoil last year. Donald Trump’s inauguration.
Mainland China’s benchmark CSI 300 index fell 0.2% on Monday and is down 4.1% in the first three trading days of the year, marking the worst start to 2025 among major indexes. of Asia.
Small-cap stocks on the CSI 2000 are down 6.6% since the beginning of the year. Hong Kong’s Hang Seng index fell 0.4% on Monday and is down 1.2% year to date.
The drop came as Chinese stock exchanges held meetings with international investors and the central bank reaffirmed its determination to keep the currency stable, in the face of Trump’s threat to interest rate cuts. Significantly increase tariffs on Chinese exports dim.
“Right now, everyone is wondering what Trump 2.0 will bring,” said Jason Lui, head of Asia-Pacific equity and derivatives strategy at BNP Paribas. “It makes sense for investors to try to make a profit.”
China’s currency slid to a 15-month low of Rmb7.33 per dollar on Monday, although the People’s Bank of China kept the daily trading band for the yuan steady. domestic. Selling pressure on the Chinese currency tends to correlate with downward pressure on the Chinese currency. Chinese stocksanalysts said.
Weak manufacturing data, one The dollar index’s highest level in two years And Trump’s impending return are both contributing to flight pressure on Chinese stocks, said CICC strategist Kevin Liu.
The Shanghai and Shenzhen exchanges sought to reassure investors that China’s economy is supported by “strong fundamentals and resilience” in a weekend meeting with institutions. abroad “to solicit opinions and suggestions” on recent moves in Chinese stocks, it said on Sunday.
The central bank on Monday kept the daily peg – the average level at which the yuan is allowed to trade 2% in either direction against the dollar – at 7.19 Rmb, despite Selling pressure on this coin.
The Financial News newspaper said the central bank will “resolutely guard against the risk of exchange rate spikes and maintain the fundamental stability” of the yuan.
It added that the central bank’s “experience of many previous price hikes and devaluations” shows it has “enough” tools to keep the exchange rate “fundamentally stable.”
In another sign of weak sentiment, investors continued to buy long-term government debt, as concerns about weak domestic consumption bolstered bets that the PBoC will ease monetary policy further .
Yields on 10-year Chinese government bonds fell 0.015 percentage points to 1.61% on Monday, after hitting an all-time low below 1.6% last Thursday. Bond yields move inversely to prices.
The weaker opening to the year came despite an announcement from Beijing that it wanted to boost domestic consumption after a protracted asset crisis.
China’s parliament is expected to meet in March to announce an economic policy agenda for what is expected to be a difficult year.
“In terms of what’s important to look for in 2025. . . Winnie Wu, chief China equity strategist at Bank of America, said investors need to look more closely at consumption, adding that government support for the private sector and youth employment is essential.
Despite the tough start to 2025, analysts noted that Chinese stocks had a strong 2024 after a prolonged decline, with the CSI 300 index ending the year up 14.7%.
“We think the worst of the price decline is over,” Wu said.
