In a turbulent kickoff to 2025, Chinese stocks tumbled in their worst New Year trading session since 2016, reflecting deep concerns about the nation’s economic stability and global trade tensions.
The CSI 300 Index, a benchmark of top-performing stocks in Shanghai and Shenzhen, plunged 2.9% on Thursday. The Hang Seng China Enterprises Index in Hong Kong mirrored the slide, falling as much as 3.1%. Analysts attribute the sharp declines to weaker-than-expected manufacturing data and fears of impending U.S. tariff hikes under Donald Trump, set to return to office later this month.
A Fragile Recovery Under Pressure
This rocky start underscores the fragility of investor confidence despite a 15% gain in Chinese stocks last year—the first annual advance since 2020. Much of that growth followed a September stimulus blitz, yet markets have since stagnated, awaiting more decisive actions from Beijing.
“It’s troubling that investors are starting the year cautiously, especially after clear signals of stimulus during December policy meetings,” remarked Homin Lee, a senior macro strategist at Lombard Odier. “The momentum for China remains fragile, and authorities will need significant efforts to address medium-term deflationary risks.”
Adding to the turmoil, key financial stocks like Industrial and Commercial Bank of China and Agricultural Bank of China traded ex-dividend, amplifying the selloff.
Stimulus Hopes and Lingering Uncertainty
In December, Beijing indicated plans for increased public borrowing and spending in 2025, with a focus on boosting domestic consumption. However, the timeline for substantial stimulus may stretch until March during China’s annual legislative sessions. This delay, coupled with looming U.S. tariff threats, has left investors on edge.
“Markets are clearly in a wait-and-see mode,” said Charu Chanana, Chief Investment Strategist at Saxo Markets. “Traders are trimming exposure to Chinese equities, positioning cautiously for 2025.”
Global investment funds began reducing their stakes in Chinese markets as early as November, reversing months of inflows, according to Morgan Stanley. Passive funds saw outflows after an October surge, and active funds accelerated their withdrawals in November.
Bond Markets Reflect Growing Pessimism
China’s 10-year bond yields hit a fresh record low on Thursday, signaling skepticism about the economic outlook. While the People’s Bank of China injected substantial liquidity at the close of 2024, officials appear wary of deploying aggressive stimulus measures too soon, preserving policy tools as Trump’s inauguration looms.
Trading Trends: Caution Over Risk
Equity trading volumes in Hong Kong surged, with activity on the Hang Seng Index 50% above the recent 30-session average. However, turnover in Shanghai and Shenzhen remained subdued, as traders waited for clearer catalysts.
“The day’s losses appear trading-driven, triggered by technical breaches and profit-taking,” said Liu Dejun, a fund manager at Beijing Kaiyuan Private Fund Management. “Many are also reducing stock exposure ahead of Trump’s inauguration and the Lunar New Year.”
The Road Ahead
With mounting challenges at home and abroad, Chinese markets are poised for a volatile year. Analysts suggest that restoring investor confidence will require not only robust stimulus measures but also a clear strategy to navigate global economic headwinds. As traders brace for what’s next, the focus remains firmly on Beijing’s policy maneuvers and their potential to steady the ship in 2025.
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