Acute Puncture

The Chinese stock market fell

Image source: Image source: T. Lesia, Marietjie - Shutterstock

What's going on?

Investors suffered from a spot of déjà vu on Monday as last year’s pre-Christmas tech stock selloff repeated itself – only this time in China. Investors suffered from a spot of déjà vu…

What does this mean?

The Chinese government’s imaginatively named “Big Fund”, which invests heavily in homegrown computer chipmakers, unexpectedly announced over the weekend that it was reducing its stake in three of the largest. The $20 billion fund owns as much as 16% of the tech firms, so freaked-out fellow investors followed suit and sold.

Chinese semiconductor stocks fell 3.5% on Monday, dragging down the overall Chinese market 1.4% in its biggest one-day drop for six weeks. Still, Chinese chipmakers aren’t fried just yet: in October, China launched an even bigger Big Fund to invest another $29 billion in them.

Why should I care?

For markets: All your baskets in one egg.

Investment funds are an easy way for investors big and small to spread their money across a pot of different stocks. But the upshot is that many companies are now largely owned by just a handful of funds with considerable power over stock prices. Saudi Aramco is another example: its newly public stock attracted $1 billion of foreign investment last week after it was included in a major emerging markets index of companies, effectively forcing funds tracking the index to buy it.

The bigger picture: Broken china.

Another reason for Monday’s selloff may have been investors’ desire to lock in their 2019 gains ahead of the festive period – a sorely needed holiday, given the prospects for next year. Chinese economic growth is expected to slow in 2020, potentially hitting stocks worldwide. The country’s government is now responding with reduced tariffs on $390 billion worth of overseas goods, including costly pork, as well as plans to help struggling private companies compete with state-owned rivals. That could spur growth – and perhaps help China overtake the US as the world’s biggest economy before the next decade is out.

Originally posted as part of the Finimize daily email.

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