Hong Kong stocks plunged five percent to a 13-year low Monday as investors were spooked by Chinese President Xi Jinping’s decision to hand key economic posts to loyalists who back his zero-Covid strategy.
The Hang Seng Index ended the morning session down 4.99 percent, or 809.48 points, to 15,401.64 by the break, its weakest level since 2009 during the global financial crisis.
The Shanghai Composite Index slipped 0.89 percent, or 27.19 points, to 3,011.74, while the Shenzhen Composite Index on China’s second exchange lost 0.35 percent, or 6.88 points, to 1,960.04.
Xi’s decision to pack his leadership with supporters as he tightens his grip on power suggests the government will not likely shift from its strategy of fighting Covid outbreaks with lockdowns and other strict measures.
The policy has been blamed for the sharp drop in growth in the world’s number-two economy and, while data showed Monday that it expanded more than forecast in the third quarter, traders remain on edge.
“The more centralised power becomes, the more the risk of overzealous policy implementation based on directives from the top,” Duncan Wrigley, at Pantheon Macroeconomics, said.
“This happened in some of the lockdowns in the second quarter.”
Tech firms were among the worst hit in the sell-off, having been hammered in recent years by Xi’s crackdown on the sector that has scythed firms’ profits and wiped billions off their valuations.
E-commerce giants Alibaba and JD.com tanked around 10 percent each, while Tencent lost more than eight percent. The Hang Seng tech index was 6.7 percent down.
The sell-off cast a shadow over an otherwise bright start on other Asian markets, where traders were cheered by a rally on Wall Street following a report saying the Federal Reserve could ease up on its rate hike campaign.
“The Hong Kong market is seeing a panic selling moment,” said Dickie Wong at Kingston Securities.
“While China reported macro data that beat expectation, the market is on a way down, as the leadership reshuffle and tensions between China and US continue to drag down sentiment and adds uncertainty.”