Why did Chinese stocks tank?

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While global stock markets are still on the march, Chinese bourses have been bashed over the past week in Hong Kong and Shanghai. Given China is the leading indicator for this business cycle, first into and out of the virus, with accompanying stimulus, is this the harbinger for global markets?

First up, the correction so far is relatively minor at around 5%. The drop in technology stocks has led it, down 10%:

So, the correction is more severe than developed markets but not out of step with it, being led by the rotation away from tech as inflation rises. Everywhere except China, that is.

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As well, Hong Kong authorities announced an increase in stamp duty on stock transactions to 0.13% from 0.10% and that was enough to spook the wider market as the price in the listed bourse was pummeled.

For the most part, then, it’s too early to say that anything beyond a regular correction in China’s higher volatility market is underway here. So far it is noise not signal except to the extent that it reinforces the warning that growth and tech stocks will not like rising inflation.

It remains my view that Chinese growth is going to slow through this year but I don’t think that is so far out of step with global markets and pricing in any macro event.

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After all, these days, decreasing economic prospects are bullish for stocks.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.