Hong Kong's Hang Seng collapsed (more) on Monday following the Chinese Communist Party's Congress where President Xi wrangled a third term and installed a new seven-member Politburo Standing Committee (PSC).
The Hang Seng Index Monday drop took it to its lowest since April 2009. It was the biggest one-day sell-off since November 2008.
In mainland China the Shanghai Composite Index fell 2%.
I posted yesterday that the drops came after the Congress - during the week-long meeting China supported stocks for appearance's sake. That support dissipated on Monday.
Goldman Sachs add that:
- risk premium for Chinese stocks in offshore markets "could stay elevated in the short-run, possibly due to investor concerns over the absence of recognised market-oriented economic reformers in the newly-configured PSC"
BoA add a further risk:
- "The new leadership indicates more concentration in top decision-making procedure"
- "Some investors may worry about the lack of checks and balances, and the risk of potential policy mistakes ... (becoming) ... major shocks to the economy."
Xi has also declared war on wealth accumulation in China. He has done so over the past couple of years with 'crack downs' on various sectors and during the Congress renewed his pledge to keep income distribution and the means of accumulating wealth "well-regulated". You can expect more stringent Communist Party oversight of private capital ahead in China.
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As for the short term after the huge drop yesterday some bounce is expected today.
