How the development of the Chinese stock markets influences financial markets worldwide

How the development of the Chinese stock markets influences financial markets worldwide

According to a report by finanzmarktwelt.de,
Pressure for the European markets is currently coming from Asia (Dax down 1% this morning). That's where the stock market sell-off intensified today after new data increased concerns about the Chinese economy and investors scaled back their bets on Federal Reserve interest rate cuts. Hong Kong stock markets led the declines, with the Hang Seng Index falling nearly 4%. The CSI 300, China's leading index for the mainland, also fell by 2.1%. The losses came after official figures showed that while China met its 2023 economic target, the country's housing woes have worsened and domestic demand has remained lackluster.

Chinese stock markets fall sharply – look at data

"China's nominal GDP growth in 2023 is lower than real GDP growth due to deflationary pressures. The labor market is weak," said Zhang Zhiwei, chief economist at Pinpoint Asset Management Co. "This suggests that China is likely growing below its potential growth." The weaker sentiment in Asia also came after the S&P 500 lost 0.4% on Tuesday and a selloff in Treasury bonds pushed 10-year U.S. bond yields up about 12 basis points. The moves followed comments from Fed Governor Christopher Waller, who urged caution but said a rate cut this year was possible.

Mixed data from China

Data released on Wednesday showed China's gross domestic product grew 5.2% last year, meeting economists' expectations and exceeding Beijing's official target of "around 5%." The latest figures for December continued to fuel concerns about the growth outlook: the decline in new home prices accelerated last month, while retail sales rose more slowly than expected. At the same time, a Chinese measure of aggregate prices posted its sharpest decline since 1999. "This is the deepest and longest deflation in China since the 1998 Asian financial crisis," said Robin Xing, chief China economist at Morgan Stanley. “The longer deflation continues, the more policy stimulus is needed.”

Development of Western markets decoupled from China

Just imagine: The CSI 300 has fallen by 4.64% since the beginning of the year alone, and by 21.95% in the last twelve months. The Hang Seng Index has fallen by 8.97% since the beginning of the year and by 29.18% in the last twelve months. At the same time, the western stock markets performed significantly better. The Dax rose by 9.12% in the last twelve months, the S&P 500 by 19.42%. So far, Western markets have ignored the weakness in China. But will it stay that way?

As a financial professional, it is important to consider that the current weaknesses in the Chinese stock markets could have a significant impact on the global market. Western markets in particular, which previously seemed disconnected from weakness in China, could now be influenced by Chinese economic data. It is advisable to keep an eye on developments in China and analyze their potential impact on international financial markets.