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Chinese regulators sought to calm markets on Monday as stocks and the renminbi extended losses in a difficult start to the year, following weak economic data and geopolitical uncertainty ahead of Donald Trump’s inauguration.
China’s benchmark CSI 300 fell 0.2 percent on Monday and fell 4.1 percent in the first three trading days of the year, marking the worst start to 2025 among major Asian indexes.
Small-cap stocks on the CSI 2000 are down 6.6 percent year-to-date. Hong Kong’s Hang Seng index fell 0.4 percent on Monday and is down 1.2 percent so far this year.
The drop came after Chinese stock markets held meetings with international investors and the central bank reaffirmed its determination to keep the currency stable, despite Trump’s threat dramatically increased tariffs on Chinese exports looming.
“At the moment, everyone is wondering what Trump 2.0 will bring,” said Jason Lui, head of Asia-Pacific equity and derivatives strategy at BNP Paribas. “It is reasonable for investors to try to make some profit.”
China’s currency fell to a 15-month low of Rmb7.33 to the dollar on Monday, despite the People’s Bank of China holding steady its daily trading range for the mainland renminbi. Selling pressure on the Chinese currency usually correlates with bearish pressure Chinese stocksanalysts said.
Weak production data, a two-year high for the dollar index and Trump’s impending return added to the outflow pressure on Chinese stocks, said Kevin Liu, strategist at CICC.
Stock exchanges in Shanghai and Shenzhen sought to reassure investors that China’s economy is underpinned by “solid fundamentals and resilience” during a weekend meeting with foreign institutions “to seek opinions and suggestions” on recent moves in Chinese stocks, they said on Sunday.
The central bank on Monday kept the daily fixed rate – the midpoint around which the renminbi is allowed to trade 2 percent in either direction against the dollar – at Rmb7.19, despite the currency’s selling pressure.
Its newspaper, the Financial News, said the central bank would “resolutely guard against the risk of overshooting and maintain the basic stability” of the renminbi.
It added that the central bank’s past “experience of multiple rounds of appreciation and depreciation” showed it had “enough” tools to keep the exchange rate “basically stable.”
In another sign of weak sentiment, investors continued to buy long-term government debt instruments, as concerns about weak domestic consumption fueled bets that the PBoC will ease monetary policy further.
The yield on China’s 10-year government bond fell 0.015 percentage points to 1.61 percent on Monday, after hitting an all-time low below 1.6 percent last Thursday. Bond yields move inversely with prices.
The weaker start to the year comes despite announcements from Beijing that it wants to boost domestic consumption after a protracted housing crisis.
China’s lower house of parliament is due to meet in March to present its economic policy agenda for what is expected to be a tough year.
“In terms of key things to look for in 2025 . . we think investors need to see more on the spending front,” said Winnie Wu, chief China equity strategist at Bank of America, adding that government support for the private sector and youth employment would be key.
Despite a rough start to 2025, analysts noted that Chinese stocks had a strong 2024 after a prolonged decline, with the CSI 300 ending the year up 14.7 percent.
“We think the worst of the devaluation is over,” Wu said.
