Chinese stocks posted their worst start to a year in nearly a decade as investors braced for economic uncertainties with weaker-than-expected manufacturing data and an anticipated hike in tariffs.
The CSI 300 Index closed down 2.9% on Thursday, its steepest drop on a year’s first day of trading since 2016. The Hang Seng China Enterprises Index slid as much as 3.1%.
The losses suggest sentiment remains fragile even after Chinese equities posted their first annual advance last year since 2020. There’s a lack of confidence over the country’s economic recovery, with the Caixin manufacturing survey coming in below estimates and Donald Trump’s threat of higher tariffs looming large ahead of his inauguration later this month.
A sharp fall in the CSI 300 in the last trading session of 2024 also pushed the gauge below the 60-day moving average, a closely-watched technical threshold, likely leading to further selling by some funds. Several large financial stocks including Industrial and Commercial Bank of China and the Agricultural Bank of China traded ex-dividend, exacerbating the benchmarks’ losses.
“It’s a bit troubling that investors are starting the new year in a cautious mode as this is happening after clearer stimulus signals from Beijing during its December policy meetings,” said Homin Lee, senior macro strategist at Lombard Odier. “The underlying momentum for China remains quite fragile, and it will take some efforts from the authorities to change the conversation on the country’s medium-term deflationary dangers.”
While Chinese stocks rose 15% last year in a rare annual gain, a bulk of the increase came in the weeks following a late September stimulus blitz. The market has since been trading range-bound, with investors waiting for more significant stimulus to drive the market higher.
Following the Central Economic Work Conference in December, China signaled more public borrowing and spending in 2025 with a shift of policy focus to consumption, in an effort to repair the economy’s weak link as looming US tariffs threaten exports.
While that announcement has given investors hope that Beijing is determined to revive the economy, some market watchers note that there will be a lull in stimulus until March when the so-called Two Sessions — China’s annual legislative session — take place.
Traders may want to limit China exposure in their portfolios as they position for 2025, according to Charu Chanana, chief investment strategist at Saxo Markets.
Global funds had already turned net sellers of Chinese stocks in November following two months of net inflows, Morgan Stanley analysts wrote in a note dated Dec. 4. Passive funds turned to outflows after heavy inflows in October while active funds accelerated net outflows in November, they wrote.
As economic concerns linger, China’s 10-year bond yields hit a fresh record low on Thursday. The People’s Bank of China injected massive liquidity into the market at the end of 2024 without using high-profile stimulus, as officials preserve policy space before Trump returns to office.
Equity trading volume was notable in Hong Kong on Thursday as markets reopened after a holiday, with that for the Hang Seng Index 50% larger than the average over the past 30 sessions. Meanwhile, turnover in Shanghai and Shenzhen bourses has remained below 1.5 trillion yuan ($206 billion) in recent days, suggesting traders are opting to remain on the sidelines until catalysts become clear.
“The losses today look very much trading driven, as there was a bit of accumulated gains that would have prompted selling with the breach of technicals,” said Liu Dejun, fund manager at Beijing Kaiyuan Private Fund Management Co. “Many are also talking about avoiding too much stock exposure ahead of Trump’s inauguration, which is close to the Lunar New Year holidays.”
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