Chinese Stocks Decline after Introduction of New Leaders

The benchmark index of China has got down to a seven-week low and the stocks experienced fall as well. Incidentally, the ruling party of this Asian power house named the new generation of its leaders today to look over the economy which is forecasted to grow at the slowest rate this year in last 10 years. According to estimates, China’s economic growth is expected to be of 7.7% this year. Xi Jinping was given the post of general secretary of the Communist Party and he probably is next in the line to become President. Wang Qishan, on the other hand, got the position of party’s head and he probably will not oversee the country’s financial matters in future, as he is doing now.

China Construction Bank Corp. suffered from the reports of the industry’s bad loans increase (Bad loans for Construction industry is now increasing for fourth straight quarter) and got down by 2.3%. The biggest Copper producer of China, Jiangxi Copper Co. also suffered a drop of 1.3% after Citigroup Inc. decided to cut its stock rating. The largest listed brokerage of China, Citic Securities Co. also saw two-month low slide in its share prices after receiving warning from the regulator. Industrial & Commercial Bank of China Ltd. and Bank of China Ltd. – both of the banks saw losses of 0.8% and 0.7% respectively.

The Shanghai Composite Index or SHCOMP came down to 2030.29 after sliding by 1.2%. So far, SHCOMP has fallen by 7.7% in 2012 as investors are concerned that the economic growth may slow down further if Chinese Government doesn’t allow the private companies to flourish and reforms all the state owned enterprises. 2030.29 incidentally is the lowest figure for SHCOMP since 26th September. CSI 300 Index also came down to 2193.62, losing 1.3%. The Hang Seng China Enterprises Index however showed an upward trend as it retreated by 1.8%.

According to Dai Ming, who works as the Fund Manager of Shanghai based Hengsheng Hongding Asset Management Co., the market was not happy with the composition of top leaders. The market was expecting leaders who would promote aggressive economic reforms, but, the new composition suggests rather slower economic reforms. Hence, the sentiments regarding the new leaders were a bit negative in the market.

The new leadership is probably going to play a major role in determining the outcome of issues such as breaking up state monopolies and deregulating interest rates. The investors are really looking forward to see whether the new leaders will lean towards reformation of the Chinese economy. However, before this new brigade of Chinese leaders take the next step and implement their economic policies, investors probably will prefer to slow things down.

The China Banking Regulatory Commission confirmed that non-performing loans taken at various Chinese banks have increased by $3.6 billion in the last 3 months. It basically gained at all types of banking institutions in China, from largest state owned lenders to foreign banks.

The largest Chinese exchange traded fund situated in US, The iShares FTSE China 25 Index Fund saw its share prices going down by 0.7% and coming at $35.74. This marks the lowest price for the iShares FTSE China 25 Index Fund in this month. Incidentally, it surged by 6.3% in last month. US is the second largest export market for China and the upcoming fiscal cliff may have impact on the Chinese stocks as well, as feared by many analysts.

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