China’s blue-chip stocks declined on Wednesday as markets struggled with credit outlook cut by Moody’s.
The CSI300 Index fell to its lowest since February 2019 at the opening on Wednesday, with the index dropping by about 12% so far this year and was seen to be one of the worst performers in the region. However, the blue chips bounced back to close 0.16% higher, while the Shanghai Composite finished with 0.1% down.
Moody’s downgraded its outlook on China’s government credit ratings to negative on Tuesday, seeing debts from Beijing’s support measure to pressure its fiscal, economic and institutional strength.
Moody’s expects China’s GDP to grow 4.0% in 2024 and 2025, while giving a forecast for long-term growth with an average rate of 3.8% from 2026 to 2030. Additionally, structural factors including weak demographics will drive a decline to 3.5% by 2030, it said.
The rating agency expects China’s real estate sector to remain weak due to the ongoing crisis. This leads to the downgrade of the Government’s credit ratings outlook to “negative” from “stable” on rising debt, while affirming China’s A1 long-term rating on the country’s sovereign bonds.
The downgrade underlines concerns over rising debt levels and the impact on economic growth in China as the government needs to rely on fiscal stimulus to boost the economy as well as mitigating the debt crisis in the property sector.
China markets have had a hard time from its economic recovery uncertainty, and the property crisis emerges to be one of the challenges for the country to deal with.
The recovery has been affected by the blowout in consumer and business activity since the start of the year, combined with a slump in housing, government debt risks, and gradual growth of the global economy.
The attention, however, will be shifted to the upcoming Politburo meeting and the annual Central Economic Work Conference for the market participants to discuss policies or outlooks for China’s economy.
