Chinese stocks fell sharply on the first trading day of 2025 as investors grappled with economic uncertainties, highlighted by disappointing manufacturing data and looming U.S. tariff hikes with Donald Trump poised to take office.
The CSI 300 Index, a key onshore benchmark, dropped as much as 1.7% on Thursday, marking its second consecutive session of losses. Meanwhile, the Hang Seng China Enterprises Index in Hong Kong slid 3.1% before partially recovering.
This decline follows the first annual gain in Chinese equities last year since 2020. Investor sentiment was dampened by the Caixin manufacturing survey, which missed expectations, coupled with a steep drop in the CSI 300 during the final trading session of 2024. This downturn pushed the index below a critical technical support level, prompting additional selling pressure from certain funds.
Adding to the market woes, large financial stocks such as the Industrial and Commercial Bank of China and the Agricultural Bank of China traded ex-dividend, intensifying the benchmarks’ declines.
Analysts Warn of Greater Downside Risks
“As we position our funds for the first quarter of 2025, it appears that downside risks outweigh potential upsides for China,” said Xin-Yao Ng, investment director at abrdn Plc. Ng cited uncertainties surrounding tariffs, weak macroeconomic indicators, and a potential pause in policy stimulus until the annual legislative sessions in March, known as the “Two Sessions.”
Chinese equities have remained largely range-bound since a stimulus-driven rally in late September. Investors are now waiting for more substantial measures to boost the market. After December’s Central Economic Work Conference, policymakers signaled plans for increased public borrowing and spending in 2025, shifting focus toward consumption to address economic vulnerabilities. However, the threat of heightened U.S. tariffs continues to weigh on sentiment.
Market Activity Reflects Cautious Outlook
Trading volume surged in Hong Kong on Thursday as markets reopened following a holiday, with turnover for the Hang Seng Index exceeding the 30-day average by 60%. In contrast, trading activity in Shanghai and Shenzhen remained subdued, with turnover staying below 1.5 trillion yuan ($206 billion) in recent sessions. This suggests many traders are holding back until clearer market catalysts emerge.
“The declines today may be attributed to forced selling by quantitative funds as onshore indices fell below the 60-day moving average,” explained Yang Tingwu, a fund manager at Fujian Tongheng Investment. He noted that adjustments by funds during year-end rebalancing likely contributed to the downturn.
With uncertainties around U.S.-China trade relations and economic policies, analysts expect continued caution in the markets as investors await the annual legislative sessions for potential policy clarity.
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