China stocks dip as deflation worries trigger scramble for offshore assets

SHANGHAI: China stocks slipped on Thursday as official data underscored persistent deflationary pressure despite fresh government consumption stimulus, intensifying a scramble for offshore assets. Hong Kong shares were roughly flat.

China, HK stocks pare losses amid consumption stimulus

• China’s blue-chip CSI300 Index dipped 0.1% by the lunch break and the Shanghai Composite Index lost 0.3%. Hong Kong’s benchmark Hang Seng added 0.1%.

• Consumer prices in China barely rose in 2024 while factory-gate prices extended into a second straight year of declines, official data showed on Thursday.

• This came a day after China, in an effort to revive demand in the sluggish household sector, added more home appliances to the list of products that can be used in its consumer trade-in scheme.

• Chinese consumer stocks index had a muted response to the government’s expanded consumer trade-in scheme.

• “The deflationary pressure is persistent,” said Zhiwei Zhang, President and Chief Economist of Pinpoint Asset Management.

• “The details on government subsidies for some consumer goods announced yesterday are positive. But the property sector downturn has not ended and continues to weigh on consumer sentiment.”

• The view was echoed by Goldman Sachs, which sees China’s significant step-up in policy easing measures only partially offsetting weak domestic consumption.

• “We believe that these measures… should help support the real economy and put a floor under Chinese equities, though policy delivery, especially on the fiscal front, will ultimately be necessary to drive equity gains in 2025.”

• Domestic investors are scrambling for overseas assets via cross-border channels, including QDII and Mutual Recognition of Funds (MRF) - a sign of weak confidence in the local market, triggering subscription suspensions and risk warnings from fund managers.

• However, tech shares gained as investors renewed patriotic bets on chip-making and information security stocks amid heightened geopolitical tensions. Rare earth stocks also advanced.

• Hong Kong’s tech index rose.

• Tencent rebounded from a four-month low as the index heavyweight bought back shares after being added by the US Defence Department to a list of companies it says work with China’s military.