China’s largest tech companies experienced significant losses on Monday as worries grew over the government’s ability to provide adequate stimulus.
Goldman Sachs, the renowned Wall Street bank, became the latest institution to slash its growth forecasts for the world’s second-largest economy, intensifying concerns among investors.
Video-sharing platform Bilibili Inc. and e-commerce giant Alibaba Group Holding were among the companies affected by the market slump.
Bilibili’s shares plummeted by 5.2% in Hong Kong, while Alibaba’s stock fell by 2%. These losses contributed to a 0.6% decline in the Hang Seng index. Another major player, Tencent Holdings witnessed a 1.5% drop in its shares.
The decline in China’s tech stocks reflects growing unease over the government’s perceived sluggishness in stimulating the economy. Investors were particularly disheartened by a lackluster cabinet meeting on Friday, which failed to yield any “concrete stimulus,” as noted by Goldman Sachs analysts.
Goldman Sachs analysts, led by Hui Shan, expressed their interpretation of the meeting, stating, “The readout suggests to us that the government faces various economic and political constraints. Going down the old route of boosting short-term growth with massive property and infrastructure stimulus goes against the top leadership’s ‘high-quality growth model.'”
Furthermore, Goldman Sachs highlighted the limited options available to the Chinese government to stimulate the economy effectively. Shan and the team emphasized that policies supporting high-end manufacturing and new energy vehicles are unlikely to drive significant growth.
As a result, Goldman Sachs reduced its 2023 full-year real GDP growth forecast from 6% to 5.4%, and its 2024 growth forecast from 4.6% to 4.5%.
The surprise 10 basis point cut in a short-term lending rate by the People’s Bank of China last week did not alleviate concerns among analysts. Goldman Sachs analysts had anticipated a cut in the country’s key Reserve Requirement Ratio (RRR) instead. They now predict a 25 basis point reduction in the RRR rate in the third quarter and a 10 basis point cut in the fourth quarter.