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Asian equities had another significant sell-off overnight, as President Trump and his advisors remained immune to financial pain as they stayed on script concerning tariffs over the weekend. Export and auto-heavy Japan suffered another significant sell-off as Mainland China and Hong Kong reopened following Friday’s market holiday and the Chinese government’s tariff retaliation. Indonesia, Thailand, and Vietnam were temporarily spared the pain due to the market holiday.
Global equity markets have baked in the worst-case scenario in a shockingly quick time period as any investor utilizing leverage has been carried out feet first. After the market closed, Central Huijin Investment Co, the Chinese government’s sovereign wealth fund focused on financial assets, announced it was “optimistic” about China’s capital markets and had “increased its holdings of exchange-traded open-end index funds (ETFs) and will continue to increase its holdings in the future”. Mainland China A shares futures are currently up +2% based on this news.
Before the Hong Kong and Mainland China markets opened, The People’s Daily published a commentary on the policy action that the Chinese government will be enacting. Obviously, US-listed China stocks had already suffered a significant sell-off on Friday as Hong Kong and Mainland China futures plummeted. Thus, the article was a non-factor in the worst market day I’ve witnessed, accompanied by extraordinarily high volumes and absolutely horrific breath. An actual policy announcement didn’t occur though it is coming. Here are the key points:
“Monetary policy tools such as reserve requirement ratio cuts and interest rate cuts have sufficient room for adjustment and can be introduced at any time”
“Fiscal policy has made it clear that it will increase expenditure intensity and speed up expenditure progress, and fiscal deficits, special bonds, special treasury bonds, etc. will still have room for further expansion depending on the situation; extraordinary efforts will be made to boost domestic consumption”
“The abuse of tariffs by the United States will have an impact on China, but “the sky will not fall” as US tariffs will “inevitably have a negative impact on China’s exports in the short term and increase downward pressure on the economy."
“However, we should see that China is a super-large economy…. China’s exports to the US have dropped from 19.2% in 2018 to 14.7% in 2024.”“Many products in the United States are highly dependent on China.”
“In the first two months of this year, domestic demand, such as investment and consumption, grew better than expected, exports initially withstood the test, and the manufacturing and service PMIs continued to pick up, with an expected growth of more than 5% in the first quarter.”
Let’s hope the Chinese government doesn’t wait long to implement domestic consumption stimulus. The Chinese government has, over the last several months, mentioned addressing several structural issues that have weighed on domestic consumption and explain China’s very high savings rate. These include:
Demographic Challenges
Migrant Workers’ Limited Rights (Hukou System)
Social Safety Net: Social Security, Healthcare, Unemployment Insurance, and Retirement Benefits.
Unfortunately, there was nowhere to hide overnight. However, Mainland investors did buy $2 billion worth of Hong Kong-listed stocks and ETFs overnight, as Southbound Stock Connect accounted for 39% of Hong Kong's turnover. Today’s market action was a shock to me.
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