Moody Downgrade Rattles: China’s blue-chip stocks took a significant hit, sinking to a nearly five-year low on Wednesday, accompanied by a further decline in the yuan. Moody’s recent cut to China’s credit outlook has intensified concerns about the country’s economic recovery.
Moody’s warning of a potential downgrade on China’s sovereign credit rating highlighted the escalating costs associated with supporting local governments and state firms, coupled with efforts to manage the ongoing property crisis. This development triggered a downturn in China’s markets, with the CSI300 Index touching its lowest level since February 2019 before staging a partial recovery, ending 0.4% higher. The Shanghai Composite Index also saw a modest uptick of 0.1%.
The tumultuous year for Chinese markets continues, marked by a fragile economic recovery, a deepening property crisis, and geopolitical challenges, including prolonged tensions with the U.S. on tech and trade. The CSI300 Index, recording a 12% drop so far this year, is poised to become one of the worst performers in the region.
In contrast, the Hang Seng Index rebounded by approximately 1.13%, led by gains in tech shares. Foreign capital saw a net inflow via the northbound trading link, marking a reversal after three consecutive sessions of outflows.
Also Read: Moody Shifts China Credit Outlook to Negative Amid Economic Challenges
Moody’s decision to downgrade China’s credit outlook further dampens investor sentiment, following disappointments in the Chinese equity market. The country’s economic recovery, initially robust at the beginning of the year, is showing signs of losing momentum, impacted by challenges in the housing market, local government debt risks, and sluggish global growth.
Despite the rise in the cost of insuring China’s sovereign debt against default, the actual investment impact appears limited, considering the relatively low foreign ownership of Chinese government bonds. Investors are now closely watching the upcoming Politburo meeting and the annual Central Economic Work Conference for insights into policy plans and the economic outlook.
In the currency market, China’s yuan faced further headwinds against the dollar despite efforts by major state-owned banks to stabilize the currency. The People’s Bank of China (PBOC) continued its trend of setting daily guidance stronger than market projections, signaling official attempts to support the yuan amidst fragile domestic demand and challenges in the property market.
China’s economic landscape remains at a critical juncture, with market participants anticipating further developments in response to Moody’s decision and closely monitoring policy discussions that could shape the future trajectory of the world’s second-largest economy.
Our Reader’s Queries
What banks did Moody’s just downgrade?
Amarillo National, Associated Banc-Corp, BOK Financial, Commerce Bancshares, Fulton Financial, M&T Bank, Old National Bancorp, Pinnacle Financial Partners, Prosperity Bank, and Webster Financial Corp have all been downgraded by the banks.
Why did Moody’s downgrade US Treasury bonds?
Last Friday, the credit ratings company lowered its outlook for the U.S. government’s AAA-rated credit to “negative” from “stable.” The reason behind this decision was the high budget deficits and Congress’s inability to address them, which puts the U.S. government at risk of dropping a notch.
Did Moody’s lower US credit rating?
Moody’s Investors Service has recently downgraded the United States’ credit rating outlook from “stable” to “negative” on November 10, 2023. Despite maintaining the nation’s top credit rating of AAA, the negative outlook indicates a higher possibility of a rating downgrade within the next one to two years.
Why was M&T downgraded?
Moody’s has attributed the downgrades to a number of factors, such as elevated interest rates, the current economic climate, and potential risks to asset quality, particularly in the commercial real estate sector.