People wearing face masks cross the road in Wan Chai district of Hong Kong on February 16, 2021.
Zhang Wei | China News Service | Getty Images
Hong Kong’s benchmark index entered bear market territory intraday on Wednesday, erasing gains from a rebound from China’s reopening.
this hang seng index It touched an intraday low of 18,105.78. That’s 20.2 percent below its 52-week closing high of 22,688.9 set on Jan. 27. A technical bear market is defined as a price drop of 20% from a recent high.
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Hong Kong tech stocks lead broader index lower, including internet firms netease and e-commerce platform Meituan and Jingdong. alibaba decreased by nearly 3%, baidu fell by more than 4%, and Bilibili plunged 6%.
this Hang Seng Technology Index It has fallen more than 25% from its peak in January. That stands in stark contrast to the reopening optimism that once drove the Asia-Pacific benchmark MSCI Asia Pacific index into a bull market.
The Hang Seng China Enterprises Index, which measures the performance of the 50 largest and most liquid mainland Chinese companies listed in Hong Kong, has also retreated more than 21% from its peak in January.
Analysts initially expected China’s economy to recover faster and sooner than expected, but that view quickly faded after China continued to release disappointing economic data.
China’s latest index of factory activity came in at 48.8, below the 50-point line that separates growth from contraction — below the 49.4 forecast in a Reuters poll.
Morgan Stanley analysts said in a May 17 note that weak readings on the manufacturing gauge “have been a reliable harbinger of policy easing.” Economists told CNBC that the disappointing rebound could lead to more stimulus from the government in the future.
“Should growth be insufficient to narrow the output gap, risks to social stability could rise and ultimately lead to more meaningful stimulus,” Morgan Stanley analysts wrote in a note.
The ONS noted that the PMI for large manufacturers was 50, while that for smaller manufacturers was lower. The services activity index remained in expansion territory at 54.5, but declined for the second straight month.
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The latest economic data, which fell sharply below expectations, was seen as “a sign of fatigue from the initial rush to reopen,” Citi economists wrote in a note Wednesday.
“Insufficient demand is likely to be the main concern now for both cyclical and structural reasons,” they wrote, adding that “the initial boost to services from reopening may be fading.”
Citi economists also expect the PBOC to cut the medium-term lending facility rate by 20 basis points and the reserve requirement ratio by 50 basis points before the end of the year.
“We believe the Chinese economy may be on the verge of a self-fulfilling confidence trap and believe that decisive policy action is required,” they wrote.
“The room for fiscal easing in the budget may be limited, and we expect the central government to step up efforts to implement structural easing and policy banks to roll out quasi-fiscal tools,” they wrote.
– CNBC’s Evelyn Cheng contributed to this report