China's Rate Change Causes Market Panic; Big Dive In Hong Kong Stocks

The People’s Bank of China (PBoC) continues to send waves of uncertainty through the market.

The central bank executed a 10-basis-point cut to its 1-year loan prime rate (LPR), setting it at an unprecedented low of 3.45%. Interestingly, the PBoC chose to leave the 5-year LPR—the reference rate for mortgages—unchanged at 4.2%, drawing skepticism over its commitment to invigorating the property sector.

The decision to trim short-term lending rates while keeping long-term rates unchanged has ignited a fiery debate, leaving investors on edge and the broader financial landscape shrouded in doubt.

According to Goldman Sachs analysts, including Maggie Wei, the PBoC’s move aims to defend banks’ interest rate margins. “Confidence remains key to an economic recovery, and the disappointing cut to the loan prime rate would not help with building confidence,” she added.

Citigroup and UBS Group AG have added their names to the expanding roster of investment banks revising down their forecasts for China’s economic expansion. Citigroup lowered its 2023 GDP growth projection from 5% to 4.7%, while UBS, taking a more cautious stance, adjusted its estimate to 4.2%, marking one of the more downbeat predictions.

China’s Declines Deepens On Rate Uncertaint

The Hong Kong’s Hang Seng Index fell by 1.82%, shedding nearly 330 points and slipping below the psychologically significant 18,000 mark for the first time since Nov. 28, 2022.

Last Friday, the Hang Seng, which is tracked by the iShares MSCI Hong Kong Index Fund EWH had already officially entered a bear market after dropping by around 21% from its January peak. Financial and tech shares bore the heaviest losses, each diving over 2%.

Also Read: Xi Jinping’s China Urges BRICS For All-Out Economic War Against G7 Nations

Chart: Shares in Hong Kong Enters Bear Market

In mainland China, domestic equity benchmarks also suffered further declines. The Shanghai Composite index and the Shenzhen Component dropped by 1.2% and 1.3%, respectively. Both indices now languish at their lowest levels in a span of at least seven months, underscoring the prevailing market pessimism.

US-Traded Chinese Stocks Experience Pre-Market Dip

Notable Chinese ADRs traded in the US witnessed further market declines.

Alibaba Group Holdings Ltd BABA fell 0.1%, JD.com, Inc. JD held steady, Tencent Music Entertainment Group TME dropped 3% and Baidu, Inc. BIDU slipped 1%. EV carmaker NIO Inc. NIO rose 2.7%, while Li Group Inc. LI edged 0.5% higher.

Now Read: Will Tesla Snap 6-Day Losing Streak Today? What’s Going On With The Stock

Photo: Shutterstock