Hong Kong stocks plunge to 17-year low amid fears of deepening deflation in China

Hong Kong stocks are grappling with their worst start to a year since 2005, intensifying concerns as traders brace for reports signalling a deepening deflationary trend in China.

The Hong Kong stock market is facing a tumultuous beginning to the year, echoing concerns not seen since 2005, as reports emerge indicating a potential exacerbation of deflationary pressures in China. The Hang Seng Index, dropping 2% to 16,197.34 during the local noon trading break, signifies a challenging period for investors, extending the market’s recent struggles. Of particular note is the Tech Index, hitting a 13-month low, and the Shanghai Composite Index slipping 0.9%, emphasizing the broader economic uncertainties.

Chinese tech giants are among the casualties of this market downturn. Alibaba Group saw a 2.3% decline to HK$70, while JD.com slipped 4.4% to HK$100.70. Tencent, another key player, lost 1.7% to HK$287.20, and NetEase retreated 3.4% to HK$141.10. The electric vehicle sector also faced declines, with BYD slipping 2.4% to HK$203, Li Auto dropping 2.2% to HK$131.90, and Meituan weakening by 4.2% to HK$74.50.

Analysts point to ongoing struggles in China’s economy, with persistent deflation as a notable challenge. Forecasts suggest a potential 0.4% decline in consumer prices in December compared to the previous year, following a 0.5% drop in November. Simultaneously, reports on January 12 are expected to reveal a slowdown in both imports and export growth, according to Goldman Sachs.

Kevin Liu, a strategist at CICC Research, emphasized the impact of the significant pullback in the first week of the year on market sentiment. He highlighted the crucial role of further policy support in reversing the current situation in the Hong Kong stock market. Additionally, Liu cautioned that even if the Federal Reserve opts to cut interest rates, any resulting rebound may be short-lived in the current economic climate.

The unfolding events in the Hong Kong stock market underscore the complex interplay between local economic factors and broader global economic trends. As investors navigate the challenges posed by China’s economic slowdown and deflationary pressures, market dynamics are poised to remain unpredictable in the near term.