On Monday, China equities listed in the United States fell, and so did the stock prices of U.S. multinational companies with significant business in China, such as Tesla (TSLA) and Starbucks (SBUX).
The unexpected actions that President Xi Jinping took over the weekend to strengthen his hold on power caused a slaughter in the Chinese stock market. The most recent economic data also demonstrated that the nation fell short of its growth targets.
The Cruel Masterstroke of Xi Jinping
After a weeklong Communist Party meeting, President Xi secured an unusual but expected third term as the leader on Sunday. However, Xi shocked both Chinese citizens and foreign watchers of China by stacking the highest levels of the party with his supporters.
In a display of ultimate power, Xi led six men in black suits onto a platform decorated in crimson and gold. Meanwhile, his predecessor Hu Jintao was almost frog-marched out of the Community party conference in Beijing.
At some point throughout the night, the Hang Seng HSI index suddenly lost 6.4% of its value. The index on the Shanghai Stock Exchange, the Composite, fell by 2%.
Under Xi’s leadership, China has increased restrictions on the technology industry, gambling businesses, and Chinese enterprises listed on U.S. markets. About two years after Beijing rejected the Ant Group IPO, which was expected to be a blockbuster, Alibaba (BABA) recorded its first quarterly sales fall in August.
Although the “Covid zero” policy has reduced the number of coronavirus outbreaks and deaths in China, it has had a significant economic impact on the country. Xi continues to advocate for it.
China Technology Stocks and China EV Stocks Fall
Invesco Golden Dragon China ETF (PGJ), which follows the Nasdaq Golden Dragon index of U.S.-listed Chinese companies, gapped down 14.2% Wednesday, reaching its lowest level in over a decade.
The PGJ ETF lost around 70% of its value from its all-time high in February 2021 to September 2022. Investor confidence was dampened by China’s regulatory onslaught on technology firms.
More good news came out of China on Monday, as the country’s economic growth accelerated to 3.9% in the third quarter, above expectations by a hair. However, that was far below Beijing’s annual goal of 5.5%. The increase in industrial production in September was better than expected, but retail sales were below projections. Because the economic data were not released until after Xi won a third term, skepticism was already high about their integrity.
Alibaba (BABA) and JD.com (JD) fell by almost 13% each and were among the worst performers in the Golden Dragon China ETF. With a 25% drop on Monday, Pinduoduo (PDD) is now officially in the red. The stock price of Baidu (BIDU) fell to a 12-year low, and Trip.com (TCOM) was down 13% and 15%, respectively. NetEase (NTES) fell by 10%.
China electric vehicle (EV) stocks Nio (NIO) and Li Auto (LI) lost 16% and 18%, respectively, and both are also among the top 10 equities in the PGJ exchange-traded fund.
Chip Stocks – Tesla
Monday saw Tesla shares drop 1.5% on the Nasdaq-100 index, but the stock later recovered some of its losses after falling to a new 16-month intraday low. On Monday, Tesla lowered prices in China, a move that was anticipated in light of recent worries about demand in the country.
While Google and Amazon fell, Apple and Microsoft both gained about 2%. The stock of Nvidia (NVDA) ended the day up 1.1% after dropping earlier.
According to FactSet, almost 45.0% of Tesla’s global income comes from the United States, with another 25% coming from mainland China. For Nvidia, the equivalent percentages are 16% and 26%. Both Apple and Microsoft have extensive, albeit less extreme, exposure in China.
Taiwan Semiconductor (TSM) and Marvell Technology (MRVL) fell by roughly 4% and 2.9%, respectively, on Monday, while AMD (AMD) fell by a more modest amount. Their losses may be attributable, in part, to their exposure in China, while other, company-specific variables are also likely at play.
In fact, 43% of Marvell’s earnings come from the People’s Republic of China. Both AMD and TSM have substantial exposure to China, but TSM must also worry that Xi may try to forcibly annex Taiwan.
The price of semiconductor company shares has dropped significantly recently. Beginning in early September, and then again in early October, the United States imposed limitations on the sale of chips and chip technology to China.
Concerns of a deeper economic and technological gulf between the United States and China have been stoked by Xi’s iron grip on power.
Casino Stocks – Starbucks
Monday saw Starbucks’ 5.5% decline among the S&P 500. A significant percentage of the coffee shop’s earnings come from the People’s Republic of China. Other casino stocks, though, fell by far more. The stock price of Las Vegas Sands (LVS) fell 10.2%, and that of Wynn Resorts (WYNN) fell 3.9%.
The former receives 68% of its income from China, while the latter receives 40%. Although Xi and China were attempting to promote tourism and sports instead of the casino industry in Macau, the latter had already begun to feel the effects of the former. If you’re looking for a place to gamble, go no further than Macau.
Stocks of Nike (NKE) and Walt Disney (DIS) finished slightly lower on the Dow Jones Industrial Average, offsetting the blue-chip index’s 1.3% gain. In terms of revenue, Nike is 15% exposed to China, while Disney is only 5% exposed.
Exchange-Traded Funds in China
The Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR) fell 4.9% on Monday, joining the Golden Dragon China ETF in losses. iShares MSCI China ETF (MCHI) fell 9.7 percent.
The former ETF invests in the 300 largest stocks listed on the Chinese mainland. The latter ETF includes stocks listed in Hong Kong as well as the United States.
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