Why Chinese, Hong Kong Stocks Are Tanking As Xi Jinping Consolidates Power

Zinger Key Points
  • Chinese leader Xi Jinping has consolidated his control over China's Communist Party.
  • Xi has appointed loyalists to top political positions and plans to maintain power for a third term.

U.S.-listed Chinese stocks were crushed on Monday morning after the Chinese Communist Party concluded its national congress meeting over the weekend.

What Happened? Chinese leader Xi Jinping consolidated his control over China's Communist Party by appointing loyalists to the party's most powerful positions and shunning convention by maintaining his presidency for a third term.

Given Xi's aggressive crackdown on large Chinese tech companies in recent years, investors see his latest power grab as bad news for Chinese innovation and economic growth.

Why It's Important: Foreign investors reportedly pulled $2.5 billion from China's domestic stock market on Stock Connect on Monday, the largest single-day outflow since the platform was launched in 2014.

U.S.-listed Chinese stocks also took a big hit. Here's how some of them were trading on Monday morning:

  • Alibaba Group Holding Ltd - ADR BABA was down 14.3%.
  • Pinduoduo Inc - ADR PDD was down 28.5%.
  • JD.Com Inc JD was down 15.3%.
  • Baidu Inc BIDU was down 15%.
  • Nio Inc - ADR NIO was down 17.8%.

Bank of America economist Helen Qiao said the new leadership group in China and the absence of a successor for Xi means China's economic fate rests solely in the hands of Xi and a handful of his most loyal supporters.

"Some investors may worry about the lack of checks and balances, and the risk of potential policy mistakes evolves into major shocks to the economy. On the other hand, this setup also implies solidarity at the highest level, and may lead to more effective policy execution and little political resistance against bolder reforms or changes to existing policy stances," Qiao said.

In the near-term, one of the biggest question marks for Chinese investors will be the future of Xi's Covid Zero policy.

While most of the rest of the world fully reopened their economies in early 2021, China is still enacting periodic lockdowns of major metropolitan areas, including full or partial quarantines of more than 300 million people as recently as last month.

Benzinga's Take: More power for Xi in China is clearly bad news for anyone investing in Chinese stocks. In the last three years, the iShares China Large-Cap ETF FXI is now down 48.6% overall while the SPDR S&P 500 ETF Trust SPY is up 25.3% in that time.

Photo via Shutterstock.

Posted In: Bank of AmericaChinaEurasiaHelen QiaoXi JinpingAnalyst ColorAsiaNewsEmerging MarketsPoliticsGlobalTop StoriesEconomicsMarketsAnalyst RatingsMoversTrading IdeasGeneral