SHANGHAI: China’s blue-chip stocks slumped to an almost five-year trough on Wednesday while the yuan currency extended losses, as markets grappled with Moody’s cut to China’s credit outlook at a time of growing worries about the economy’s stuttering recovery.
The ratings agency issued a downgrade warning on China’s sovereign credit rating on Tuesday, saying costs to bail out local governments and state firms and control its property crisis would weigh on the world’s second-largest economy.
Moody’s followed up its China move with changes to its outlooks on 18 Chinese corporates to negative on Wednesday.
China stocks opened down with the CSI300 Index touching its lowest level since Feb. 2019, before recouping earlier losses. It closed up 0.2%, with the Shanghai Composite Index down by 0.1%.
Chinese markets have had a torrid time this year as a shaky economic recovery and a deepening property crisis have added to geopolitical challenges, including protracted Sino-US tensions over tech and trade.
The CSI300 Index has tumbled about 12% so far this year and is set to record one of the worst performer in the region.
The Hang Seng Index, meanwhile, rebounded and closed up 0.8%, with tech shares leading gains.
“The CSI300 index was hit the hardest in terms of valuation, as the index gets more allocations from foreign investors. Adding the impact of Moody’s cut, the index may find a bottom and rebound soon,” said Pang Xichun, research director at Nanjing RiskHunt Investment Management Co.
Foreign capital recorded a net inflow via the northbound trading link on Wednesday, after three consecutive sessions of outflows.
“Moody’s decision to downgrade its outlook on China’s debt is the latest link in a long string of recent disappointments for investors in Chinese equities,” said Yasser El-Shimy, investment analyst at The Motley Fool.
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