The CSI 300 index of Chinese stocks closed lower on Thursday, plunging 15% from its February high as investors worried about a possible tightening of the Communist Party’s monetary policy and the imposition of sanctions by the U.S. and other Western countries on the Communist Party over Xinjiang.
On Thursday (March 25), China’s stock market CSI 300 index closed 0.05% lower, falling to its lowest close since Dec. 11, 2020.
The CSI 300 Financial real estate Index closed 0.55% lower, while the CSI 300 Major Consumer Index closed 0.68% lower.
The Shanghai Composite Index has fallen 9.86% since its Feb. 18 high, the second Time this month it has approached 10% correction territory.
Bloomberg reported on March 25 that the CSI 300 has plunged 15% since climbing to a 13-year high last month. That compares with a 27 percent gain in 2020, making the CSI 300 one of the world’s best-performing stock markets.
Bloomberg reports that the previous rally in China’s stock market was driven by investors chasing a handful of stocks, many of which saw an influx of money as stocks rallied.
But market expectations of an imminent tightening of Communist Party monetary policy as policy makers seek to rein in risky lending have weakened investor interest in Chinese stocks.
Analysts at Credit Suisse Group AG downgraded their recommendation on Chinese stocks to a sell rating this week. This is the second time in five weeks that the firm has downgraded Chinese stocks.
Jean-Louis Nakamura, chief investment officer for Asia Pacific at Lombard Odier Darier Hentsch, wrote in a client newsletter this week, “We closed our profit on our investment in China A-shares in early February, given the outlook for domestic macro policy tightening.”
Frank Benzimra, head of Asian equity strategy at Société Générale, said, “We expect much more ordinary equity returns [in China] over the next few quarters.”
Citigroup Inc. managing director and chief China economist Liu Ligang wrote in a report this month that “China’s policy exit remains one of the most important uncertainties for its own recovery and for future financial markets.”
Also, Reuters reported on March 25 that Chinese stocks are under greater pressure as the U.S., EU, U.K. and Canada imposed sanctions on Chinese Communist Party officials over Xinjiang on Monday (March 22), the first concerted action by the U.S. in conjunction with the West against Beijing since Biden took office.
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