Chinese stocks have gotten crushed over the last few weeks as the Hong Kong's Hang Seng Index hit its lowest point since November 2022 over concerns about China's economic growth as well as surprise rate cuts.
What Happened: China's central bank reduced the lending rate for its 1-year bonds but kept the 5-year bond interest rates steady, leading to heightened investor uncertainty.
Forexlive analyst Adam Button sees striking similarities between China's economic situation and the U.S. crisis of 2008.
Button says that underlying weakness in the real estate market, as well as a central bank that appears slow to act and not willing to cut rates enough, could lead China toward a significant economic collapse, akin to the 2008 Great Recession in the U.S.
Sticky Situation: "I worry that similar dynamics are beginning to unfold in China," Button said in a piece on Forexlive.com. "The call from the PBOC's Cai Fang last week is starting to look like a desperate Quixotic attempt to save the day but a commentary published the Party's Study Times this week closed the door on that possibility and now officials are offering up ham-handed proposals like stopping equity market selling and cutting trading fees."
Button's call came before China decided to further cut its short-term bond rates today. But, if China's current situation does end up playing out like the U.S. in 2008, the Chinese central bank's rate cuts will end up being too little too late.
Price Action: The uncertainty surrounding China's economic situation has led to a sharp decline in a number of Chinese stocks like Alibaba Group (NYSE: BABA), JD.Com Inc (NASDAQ: JD), which are among the holdings in the KraneShares CSI China Internet ETF (NYSE: KWEB). If China's economic outlook continues to worsen, there could be weakness in oil prices and energy stocks as a result.