China Blue-chip Stocks Hit 5-year Lows, Yuan Eases after Moody's Move

People walk at a shopping compound in Beijing, China December 6, 2023. REUTERS/Tingshu Wang
People walk at a shopping compound in Beijing, China December 6, 2023. REUTERS/Tingshu Wang
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China Blue-chip Stocks Hit 5-year Lows, Yuan Eases after Moody's Move

People walk at a shopping compound in Beijing, China December 6, 2023. REUTERS/Tingshu Wang
People walk at a shopping compound in Beijing, China December 6, 2023. REUTERS/Tingshu Wang

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 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.
China stocks opened down with the CSI300 Index touching its lowest level since Feb. 2019, before recouping earlier losses. It was up 0.2% by midday, while the Shanghai Composite Index was down 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 12.2% so far this year and is set to record one of the worst performer in the region.
The Hang Seng Index, meanwhile, rebounded roughly 0.7% in morning trade, 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 as of midday, 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.
China's economic recovery has shown signs of losing steam quickly after an initial burst in consumer and business activity at the start of the year, weighed down by an ailing housing market, local government debt risks and slow global growth.
FRAGILE YUAN
In the currency market, China's yuan slipped against the dollar on Wednesday even as major state-owned banks continued their efforts to stabilise the currency.
The central bank, the People's Bank of China (PBOC), extended its months-long trend of setting daily guidance fix at levels stronger than market projections, which traders and analysts have widely interpreted as an official attempt to keep the currency stable.
On Wednesday, the PBOC set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1140 per dollar prior to market opening, 13 pips weaker than the previous fix of 7.1127. But it was 336 pips firmer than Reuters estimate of 7.1476.
"The strong yuan fix continues to convey a message of support for the yuan as domestic demand remains fragile and China's property market continues to struggle to find a foothold," Maybank analysts said in a note.
The spot yuan rate opened at 7.1570 per dollar and was changing hands at 7.1578 at midday, 98 pips weaker than the previous late session close.
China's major state-owned banks stepped up US dollar selling forcefully after the Moody's statement on Tuesday, and they continued to sell the greenback on Wednesday morning, Reuters reported.
The yuan has had a volatile year, having weakened 6.14% to the dollar at one point before recouping some of the losses on growing bets that US interest rates have peaked.
The yuan strengthened 2.55% in November, its best month this year, but it is still down 3.6% year-to-date.
Other global ratings agencies, Fitch Ratings and S&P Global Ratings, made no changes to their respective China credit ratings.
Fitch affirmed China's A+ rating with a stable outlook in August, while S&P Global said on Wednesday it has retained China's A+ rating with a 'stable' outlook.
"We last affirmed our A+ long term ratings on China in June with stable outlook and there has been no changes to that yet," said S&P in an emailed response to queries from Reuters.



Saudi Arabia to Host Multilateral Industrial Policy Forum

The Saudi flag. Asharq Al-Awsat
The Saudi flag. Asharq Al-Awsat
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Saudi Arabia to Host Multilateral Industrial Policy Forum

The Saudi flag. Asharq Al-Awsat
The Saudi flag. Asharq Al-Awsat

Saudi Arabia, in partnership with the United Nations Industrial Development Organization (UNIDO), will host the Multilateral Industrial Policy Forum (MIPF) in October, underscoring the Kingdom's significant industrial transformation, in line with Vision 2030, and aiming to expand the Saudi industrial base and solidify its position as a leading global industrial center.
Organized by the Ministry of Industry and Mineral Resources in Riyadh, the forum is yet another substantial industrial development initiative the Kingdom relentlessly takes.
By carrying out programs focused on innovation, diversification, and boosting of the industrial sectors, including 12 strategic sectors identified in the National Industrial Strategy, Saudi Arabia seeks to raise competitiveness and support its national economy.
Beyond the National Industrial Strategy, the Kingdom has invested in developing industrial infrastructure, such as industrial cities and special economic zones, and fostered international cooperation to facilitate transfer of knowledge and technology. The forum, in which global experts and decision makers participate, is an ideal platform to exchange expertise and set best practices in industrial policies.
Saudi Arabia aims to develop policies that are in line with international standards, thus increasing the global competitiveness of its industrial sector. By leading initiatives for sustainable industrial practices, promoting international cooperation, exchanging expertise, and adopting environmentally friendly technologies, the Kingdom seeks to enhance the flexibility of its supply chains, in line with the Global Supply Chain Resilience Initiative.
The industrial sector in Saudi Arabia witnessed significant developments in 2023, including announcing major investment opportunities in targeted sectors, issuing a license for the first Saudi-made electric car brand "Ceer", and opening the first electric vehicle manufacturing factory "Lucid". The Kingdom aims to produce over 300,000 cars annually by 2030.
Attracting private sector investments is crucial to achieving the goals of the National Industrial Strategy. The industrial sector focuses on enhancing integration among various sectors and their supply chains, developing infrastructure, encouraging joint investments, promoting local content, and empowering national companies through policies, financing, and training.
In July 2022, the Ministry of Industry and Mineral Resources launched the Future Factories Program, which aims to transform 4,000 factories from labor-intensive models to efficient, automated operations utilizing advanced industrial solutions. This initiative seeks to enhance competitiveness, improve product quality, and increase exports of Saudi non-oil products.
The ministry has also made strides in improving the regulatory and legislative environment for the industrial sector, creating an environment conducive to investments and fair competition.
The ministry's goals for 2024 and 2025 include attracting investments in targeted industrial sectors, reaching a total investment volume of SAR451 billion, adding 1,500 products to the mandatory local content list, increasing the industrial sector's contribution to non-oil GDP to SAR412 billion, and boosting non-oil exports to over SAR300 billion. Moreover, the ministry aims to launch the industrial sector governance initiative to stimulate integration and concerted efforts among relevant stakeholders.
The second edition of the Multilateral Industrial Policy Forum, hosted by Riyadh under the theme "Transforming Challenges into Sustainable Solutions through Industrial Policies", will bring together some 3,000 industry leaders from around the world, including decision makers, CEOs, industry specialists, and people interested in developing industrial policies.