China Stocks Drop Like A Rock As Xi Solidifies His Grip On Power

Key Insights

• Chinese stocks are under strong pressure as traders react to recent political developments in the country. 
• The sell-off is extremely strong. It’s a true panic. 
• Meanwhile, Tesla cuts prices for its cars in China as consumer activity is slowing down.

Chinese Stocks Test Multi-Year Lows

Chinese stocks suffered a strong sell-off as traders reacted to the developments at China’s 20th party congress, where Xi Jinping solidified his grip on power.

Importantly, China’s former President Hu Jintao was moved out of the stage during the closing ceremony, which was shown in the official coverage. This event had a negative impact on market mood as it indicated that Xi’s power was rising.

Hang Seng, the index of stocks traded in the Hong Kong stock exchange, was down by more than 6% in the first trading session of the week, dropping to levels that were last seen back in 2009. Mainland China stocks were also under strong pressure.

In the U.S. markets, traders rushed to sell Chinese stocks. Alibaba, Baidu, JD, Nio were down by 13-17%. The sell-off was broad, and it was hard to find a Chinese stock that managed to gain ground during today’s trading session.

Traders are worried that China will be focused on security and social stability issues at the expense of the economic growth. In addition, tensions between the U.S. and China are set to increase after the recent U.S. decision to impose export controls on chips exported to China.

Traders should also keep in mind that some Chinese stocks would ultimately leave U.S. exchanges due to audit rules. All in all, it looks that foreign capital is moving out of Chinese stocks due to various risks.

Tesla Cuts Prices In China

Meanwhile, there is another interesting China-related topic. According to recent reports, Tesla cut its starter prices for Model 3 and Model Y cars in China by 9%.

Not surprisingly, the reports had a negative impact on Tesla stock, which was down by 3% at the time of writing.

Analysts have previously wondered whether demand for Tesla cars will stay high during the slowdown of the world economy.

Today, China reported that Retail Sales increased by just 2.5% year-over-year in September, compared to analyst consensus of 3.3%. The report highlighted the negative impact of coronavirus-related restrictions on consumer mood.

Tesla’s decision to cut prices shows that the company is worried about the slowdown of consumer activity. It should be noted that the initial market reaction was modest. Tesla stock is volatile, and today’s move is not a major one.

At the same time, weakening consumer activity and recent political developments in China may present a problem for Tesla, although it remains to be seen whether it will have a significant impact on the company’s sales in the upcoming quarters.

For a look at all of today’s economic events, check out our economic calendar.