Chinese stocks sink to near 2023 lows as rally resumes

Chinese stocks erased their annual gains amid growing concerns about the outlook for the country’s economy and the possibility of an unprecedented U.S. debt default.

China’s benchmark CSI 300 index of Shanghai- and Shenzhen-listed shares fell 1 percent on Wednesday, extending the index’s annual loss to 2 percent when the renminbi’s depreciation against the dollar is taken into account. In Hong Kong, the Hang Seng China Enterprises index fell 1.6 percent.

The latest losses in Chinese stocks followed disappointing economic data that suggested the country’s recovery from suffocating zero Covid restrictions had begun to falter. Official data this month showed record unemployment among China’s youth, with one in five unemployed.

“Most investors are not confident about the outlook for the Chinese market,” said Dickie Wong, head of research at Kingston Securities in Hong Kong. According to Wong, the Chinese government “can’t do anything about youth unemployment right now.”

“Teenagers don’t want to work in the countryside or in factories, they want to work at Alibaba or Tencent,” he added, “but Chinese tech companies are now downsizing.”

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Alibaba shares fell 1.6 percent on Wednesday after the company reported a 7 percent decline in its cloud business.

Elsewhere in the region, Japan’s Topix index, which hit its highest point since 1990 this month, fell 0.3 percent and Australia’s S&P/ASX 200 fell 0.5 percent.

Losses in Asia-Pacific shares followed a sell-off on Wall Street after Washington policymakers failed to reach a deal on raising the debt ceiling and less than two weeks before the US government defaulted.

The lack of tangible progress in talks between US President Joe Biden and Republican House Speaker Kevin McCarthy sent the benchmark S&P 500 down 1.1 percent, while the tech-focused Nasdaq Composite fell 1.3 percent.

In currency terms, the New Zealand dollar fell 1.3 percent against the U.S. dollar after the country’s central bank raised its key interest rate by 0.25 percentage points, but appeared to rule out further rate hikes.

“According to the RBNZ’s updated forecasts for the official cash rate, the Bank is now done tightening,” wrote economists at Capital Economics following the bank’s decision to raise interest rates to 5.25 percent.

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Futures sent the FTSE 100 down 0.4 percent at the open, while the S&P 500 was expected to rise 0.1 percent when trading on Wall Street begins later in the day.