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Chinese regulators on Monday sought to reassure markets as stocks and the yuan widen their decline following a tough start to the year following weak economic data and geopolitical uncertainty ahead of President Donald Trump’s inauguration. And so.
Mainland China’s benchmark CSI300 index fell 0.2% on Monday and 4.1% in the first three trading days of the year, the worst start to 2025 among Asia’s major indexes.
Small-cap stocks in the CSI2000 have fallen 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 China Stock Exchange holds a meeting with foreign investors and the People’s Bank of China reaffirms its commitment to maintaining currency stability amid President Trump’s threat to significantly increase tariffs on Chinese exports. was the cause of the decline.
“At the moment everyone is wondering what Trump 2.0 will bring,” said Jason Lui, head of Asia Pacific equities and derivatives strategy at BNP Paribas. “It’s natural for investors to want to make a profit.”
The Chinese currency fell to a 15-month low of 7.33 yuan to the dollar on Monday, despite the People’s Bank of China holding firmly to the onshore yuan’s daily trading band. Analysts say selling pressure on the Chinese currency tends to correlate with downward pressure on Chinese stocks.
Kevin Liu, a strategist at CICC, said weak manufacturing data, the dollar index at a two-year high and President Trump’s impending return all contributed to outflow pressure on Chinese stocks.
China’s economy is supported by “solid fundamentals and resilience,” the Shanghai and Shenzhen exchanges said in a weekend meeting with foreign institutions “soliciting opinions and suggestions” on recent developments in Chinese stocks. It said on Sunday that it sought to reassure investors.
The People’s Bank of China on Monday kept its daily fixed rate unchanged at 7.19 yuan, the midpoint at which the yuan can trade 2% in both directions against the dollar, despite selling pressure on the currency.
The People’s Bank of China will “resolutely guard against the risk of exchange rate overshoot and maintain the fundamental stability of the renminbi,” the Financial News said.
It added that the central bank’s past experience of “multiple appreciations and depreciations” showed it had “sufficient” means to keep the exchange rate “fundamentally stable”.
In another sign of weak sentiment, investors continued to buy long-term government bonds as concerns about weak domestic consumption led to growing expectations that the People’s Bank of China would further ease monetary policy.
China’s 10-year government bond yield fell 0.015 percentage points to 1.61% on Monday, after hitting a record low below 1.6% last Thursday. Bond yields move inversely to prices.
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The year started off sluggish, despite the Chinese government’s announcement that it wants to boost domestic consumption following a protracted real estate crisis.
China’s rubber-stamp parliament is scheduled to meet in March to unveil an economic policy agenda in what is expected to be a difficult year.
“In terms of important things to watch in 2025…we think investors need to look more at consumption,” said Winnie Wu, chief China equity strategist at Bank of America. He added that government support for the private sector and youth employment is essential.
Despite the tough start to 2025, analysts said Chinese stocks had a strong 2024 after a prolonged slump, with the CSI 300 index ending the year up 14.7%.
“We think the worst of derating is over,” Wu said.
