China’s economic woes deepen as Moody’s downgrade triggers stock market crisis

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People walk past a screen displaying the Hang Seng index at Central district, in Hong Kong, China December 6, 2023. REUTERS/Tyrone Siu/File Photo

China’s blue-chip stocks experienced a decline reaching their lowest point in nearly five years on Wednesday. This was triggered by Moody’s decision to downgrade the country’s credit outlook.

The market turbulence follows Moody’s concerns regarding the increasing costs associated with supporting governments, managing state-owned enterprises and addressing the property crisis in the world’s second largest economy.

The CSI300 Index, which is known for being influenced by foreign investor sentiment initially dropped to its lowest level since February 2019 before recovering to close with a 0.2% gain.

The Shanghai Composite Index also faced a setback closing down by 0.1%. This year has been particularly challenging for markets due to an economic recovery, an escalating property crisis and persistent geopolitical tensions, especially in the ongoing technology and trade disputes with the United States.

Moody’s further added to market uncertainties by revising outlooks on 18 corporations on Wednesday. The CSI300 Index has already experienced a decline of 12% this year making it one of the worst-performing indices in the region.

In the midst of the turbulence, despite the strong efforts made by major state-owned banks to stabilise it, the Chinese yuan continued to lose value against the dollar on Wednesday. The initial exchange rate for the yuan was 7.1570 per dollar. It further weakened to 7.1567 marking a decline of 87 pips compared to the closing rate.

As Moody’s announcement reverberated through the market, major state-owned banks intensified their efforts to sell U.S. dollars, continuing their actions into Wednesday morning. Although there was an inflow of capital through the northbound trading link it is evident that China’s financial landscape remains delicate and uncertain due to ongoing challenges.

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