Chinese Stocks Tumble To 2021 Low, Hong Kong Enters Correction As Central Bank Support Fades

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by Tyler Durden
Wednesday, Mar 24, 2021 - 11:21 AM

China’s benchmark stock index extended losses for a second day, closing at a new low for the year after breaching the key 5,000 point threshold. The CSI 300 Index fell 1.6% to close at 4,928.69 points, the lowest level since December 11. It was headed for its steepest monthly loss in more than two years. The drop took losses from this year’s peak to more than 15% amid broader weakness in Asian markets as setbacks to the pandemic recovery weighed on riskier assets.

Materials stocks plunged as much as 5.3%, extending a four-day losing streak on news that China is considering selling aluminum from state reserves to cool prices. Zhejiang Huayou Cobalt declined as much as 8.3%, while Aluminum Corp of China was down 6.1%. Elsewhere, China Fortune Land slumped 8.2% while Yihai Kerry Arawana dropped 6.5%.

The CSI 300 Index has hovered around 5,000 points for much of the past two weeks after it entered a correction. The gauge had consolidated after Chinese state funds stepped in to buy shares during the National People’s Congress. However, China's Plunge Protection team has been largely missing ever since authorities had moved to soothe investor concerns recently, as what started the year as a world-beating rally unraveled amid official warnings of market excess and the prospect of tighter liquidity, Bloomberg reported.

“The market sentiment has been weak since the Lunar New Year holiday and any bad news would add selling pressure,” said Amy Lin, an analyst at Capital Securities. Concerns over weak sentiment also came against the backdrop of heightened political tensions between Chinese officials and their U.S. and E.U. counterparts.

But while domestic buyers have stepped away from local markets in the absence of explicit backstops from the National Team, foreign investors returned to buying onshore stocks again, scooping up a net $767 million worth of shares via trading links on Wednesday according to Bloomberg calculations.

That said, both domestic and foreign traders offloaded stocks sensitive to the local economy such as Macau casino shares and Hong Kong property developers.

Meanwhile, the MSCI Hong Kong gauge dropped as much as 2.4% to the lowest since Feb, while Hong Kong’s Hang Seng Index entered a technical correction as the city’s temporary suspension of BioNtech vaccinations fueled worries over the pace of its recovery from the pandemic.

Commenting on the recent sharp weakness in the key Asian markets, Bloomberg's Wes Goodman writes that - surprise - the PBOC and the BOJ may be behind the weakness in Asia stocks.

As Goodman notes, China hasn’t been this frugal in its cash offerings to banks in almost a year, with the People’s Bank of China avoiding net injections of short-term liquidity into the financial system since late last month, increasing concern that access to funds is becoming more difficult.

Meanwhile, the weakness in Japan’s Nikkei which fell for a fourth straight day, was also attributed to the central bank, after the BOJ said last Friday that it’s scrapping its annual target for stock purchases, and would focus its buying on the Topix while leaving the benchmark Nikkei225 alone.

As Goodman concludes, "stocks in both China and Japan had gotten used to these forms from the central banks. Now this backing, while not going away, is ebbing, and that could mean less central bank handholding for equities."