Chinese stocks fell into bear-market territory on Thursday after a record 10-week losing streak, as disappointing corporate earnings and fading expectations of government stimulus deepened the sell-off.
The CSI 300 index dropped roughly 20% from its June peak, crossing the conventional threshold for a bear market. Hong Kong’s Hang Seng lost 2.9% by midday, while its technology index plunged 4.6%.
The weakness comes despite China’s economy growing a stronger-than-expected 4.5% in the third quarter.
That resilience has complicated the outlook for investors hoping Beijing will introduce aggressive measures to support markets.
Weak profits deepen the sell-off
The CSI 300, tracking leading shares in Shanghai and Shenzhen, completed its tenth consecutive weekly decline on 16 October, a record streak. Thursday’s losses added to the pressure, although the current trading week is not yet complete.
The damage extends beyond expensive technology stocks. Battery manufacturer CATL plunged about 12% on Wednesday after quarterly profit rose only 14.5%, despite a 58.6% increase in revenue.
Fierce competition and rising costs have made it harder for manufacturers to turn sales growth into stronger margins.
Pella Funds chairman Jordan Cvetanovski told CNBC on Thursday that years of overinvestment and excess industrial capacity were undermining profitability, including in industries where Chinese companies remain globally competitive.
Hong Kong-listed Alibaba fell around 6% on Thursday and Tencent lost 3.4%, adding to the regional gloom.
The market’s problem is increasingly about earnings quality: strong output and competitive exports do not necessarily translate into attractive shareholder returns.
The unwinding of crowded AI positions has compounded the problem, leaving once-fashionable technology names especially vulnerable to further sharp profit-taking.
Stronger growth weakens hopes of rescue
China’s third-quarter GDP expanded 4.5% from a year earlier, above the 4.4% forecast and faster than the previous quarter’s 4.3% pace. Exports helped offset weak household consumption and a prolonged property slump.
For policymakers, that performance reduces the immediate need for sweeping stimulus. For shareholders, it removes a potential catalyst at the very moment corporate earnings are coming under pressure.
Beijing has favoured targeted assistance, including mortgage interest subsidies, rather than the broad spending programme some investors wanted. Benchmark lending rates were left unchanged this week.
“Investors have consequently largely priced out the possibility of further near-term stimulus,” Value Partners investment chief Kelly Chung told Reuters in comments published on Thursday.
That creates a difficult imbalance. Export-led growth can keep the economy expanding while domestic businesses continue to struggle with low demand, price competition and weak margins.
Unless consumption improves, better GDP figures may do little to restore investors’ confidence in profits.
State-backed buying offers a possible floor
There are signs the sell-off is attracting buyers. Exchange-traded funds favoured by China’s state-backed National Team recorded their largest weekly inflows since July.
China Securities Co. analysts, including Yao Ziwei, described the inflows as “helping restore investor confidence and stabilise market expectations”, Bloomberg reported, citing concentrated exchange-traded fund purchases near the close.
Such purchases could slow the decline, but they cannot reverse weak earnings or revive consumer spending by themselves.
The technology-heavy STAR 50 has already lost nearly 40% during the current half-year, demonstrating how crowded AI bets can unravel.
Further losses are possible if profit forecasts deteriorate or stimulus disappoints again. Equally, sustained fund inflows, firmer household demand and stronger earnings could stabilise the market.
The post China stocks hit bear market after 10-week rout: is 20% crash just the start? appeared first on Invezz