China’s stock market fell to a six-month low on Tuesday, August 6th, and the exchange rate of the Chinese Yuan against the US Dollar retreated from a seven-month high on Monday.
According to reports from Reuters, the blue-chip CSI 300 Index dropped to its lowest point since February on Tuesday. The Shanghai Composite Index closed up by 0.2%, while the Hong Kong Hang Seng Index fell by 0.3% on Tuesday after hitting its lowest point since April 22 on the previous trading day.
The US Dollar reached a seven-month high of 7.1120 against the Yuan on Monday, and by Tuesday afternoon trading session, the onshore Yuan exchange rate was around 7.1450.
Christopher Ying, an investment manager at Shanghai Ju Cheng Asset Management, expressed doubts about whether China could serve as a safe haven amid global economic downturn due to its unstable fundamentals.
Ying mentioned that to truly gauge the pulse of the Chinese economy, investors would need to wait until the mid-year financial reporting season in China ends along with the anticipated interest rate cut by the US Federal Reserve in September.
Some investors attributed the market weakness on Tuesday to the rise in long-term yields, which might suppress stock valuations.
Market interest in bonds decreased after the People’s Bank of China (PBOC) requested certain financial institutions to report daily changes in their long-term government bond positions and balances, indicating a potential stricter scrutiny.
Yan Ziqi, an analyst at Huaxin Securities, stated that the pullback triggered by the sale of bonds by major banks might be just the beginning, as state-owned banks have sufficient “ammunition.”
Compared to other Asian markets, both the Chinese and Hong Kong stock markets performed poorly on Tuesday, while other Asian markets saw some recovery. The Japanese stock market surged over 10% on Tuesday following the historic selloff on Monday.
Xia Haojie, an analyst at Guosen Futures, mentioned that China’s stock market has been underperforming relative to other regional markets this year, making it less susceptible to global volatility.
He also noted that Chinese stocks have hit rock bottom against the backdrop of tight monetary pressure, prolonged stagnation in the real estate sector, and weak consumer demand, which has become a focal point of concern for investors regarding China’s lagging economic growth.