News

Chinese Tech Stocks Tumble as Economic Woes Deepen

James L. Flint

• August 20, 2023

Chinese tech stocks took a nosedive on Friday as concerns about the health of the world's second-largest economy continued to escalate. The Hang Seng Tech index plummeted over 3%, putting pressure on some of China's biggest internet companies. Alibaba (BABA) saw a 3.4% decline, JD.com (JD) slumped 5.3%, and Baidu (BIDU) fell 2.7%. These losses extended their losing streak, creating unease for investors.

Meanwhile, Hong Kong's Hang Seng index experienced a significant drop of 2.1%, placing it in bear market territory. Deutsche Bank strategist Henry Allen remarked on the situation, stating that "The downbeat tone has continued in Asia overnight, with all the major indices losing ground. The Hang Seng has seen some of the biggest declines, and as it stands right now, the index is more than 20% beneath its recent peak in January."

To defend the Chinese yuan, the People's Bank of China took action by fixing the currency at 7.2006 per U.S. dollar - a value lower than the average estimate of 7.305 per dollar. According to ING economists, this move represents "the biggest defense of the yuan via fixing guidance on record."

Market economists have grown increasingly skeptical about China's ability to achieve its annual target of 5% GDP growth. In fact, Nomura economists recently cut their forecasts, now predicting only 4.6% growth instead of the earlier projected 5.1%. Other major financial institutions such as Morgan Stanley, J.P. Morgan, and Barclays have also revised their forecasts downwards, anticipating growth below 5% this week.

Ting Lu, head economist at Nomura, referred to China's "ongoing downward spiral" and pointed out weaker-than-expected data from July. Industrial production, retail sales, fixed investment, and exports all saw a decline during that month.

While the economic challenges China faces continue to mount, the impact on tech stocks and financial markets remains a pressing concern. Investors will now closely monitor developments to assess the overall stability of the Chinese economy.