China’s already beat-up stock market is facing fresh trouble, with the ongoing conflict between Israel and Palestinian Islamist group Hamas worsening investors’ jitters about their investments in the country.
Investors have flooded listed companies ranging from fertiliser producers and oil companies to drone makers with questions around their exposure to the war.
At the same time, Chinese stocks are seeing a broad sell-off, with infrastructure-related shares – especially those exposed to Belt and Road projects in the Middle East – being the worst hit.
“Uncertainty was still high in domestic market despite improved economic data, facing the double whammy of US employment data (driving up interest rates) and Middle East risks,” said Xu Wenyu, an analyst at Huatai Futures.
China’s muted diplomatic stance – calling for de-escalation but stopping short of condemning Hamas – has also drawn criticism from Israel and the US.
That has further added to investors’ nervousness about how the conflict could spill into geopolitics.
“The silence is kind of negative to the market,” said a mainland China-based strategist who declined to be identified due to the sensitivity of the topic.
Clashes between Israel and the Palestinian Islamist group Hamas have claimed more than 1,500 lives since Hamas’s surprise strike on Saturday.
And Israel’s retaliatory vow to seek “mighty vengeance” has fuelled concerns that prolonged fighting could put the brakes on projects planned as part of China’s decade-old belt and road initiative (BRI).
As investor confidence was rattled on Tuesday, shares in the CSI One Belt & One Road Index slumped more than 2%, with construction giants with business in the Middle East leading losses.
State-owned China Communications Construction, which signed contracts worth $3 billion in the Middle East in the past three years, slumped 8.5%. China Railway Group and China State Construction Engineering Corp closed down 7.8% and 4%, respectively.
“The war would more or less negatively impact the firm’s business in the Middle East,” said a retail investor who declined to be identified.
All in all, overseas investors dumped 5.4 billion yuan ($740 million) of Chinese shares via Stock Connect on Tuesday.
Bucking the trend, meanwhile, drone maker Aerospace CH UAV gained over 6% in two days as drones were reported being widely used in the conflict.
Worried investors took to the investor relations platforms on Shanghai and Shenzhen stock exchanges to reach out to exposed companies.
One investor asked Asia Potash International Investment Guangzhou if the war would change its plans to expand production of potash fertiliser.
“The war would affect fertiliser suppliers’ production in the Dead Sea area,” the Shenzhen-listed company said. However, they added, “it won’t change the company’s strategy to expand production”.
Most other companies didn’t respond to investors’ queries on the platforms or said there was no impact.
Investor concerns are especially heightened as multiple headwinds facing China have already soured risk sentiment.
With a flailing post-Covid recovery and the country’s biggest property developers teetering on the edge of debt default, China’s benchmark CSI 300 Index has shed close to 6% of its value so far this year.
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