Chinese real estate stocks are back at 2008 lows, per Bank of America

Chinese stocks trading in Hong Kong are expected to face losses on Monday following a disappointing set of economic data, which has intensified doubts about any near-term market recovery.

Data released on Saturday showed that Chinese factory output, consumption, and investment all slowed more than expected in August, while the unemployment rate unexpectedly rose to a six-month high. Home prices also fell compared to the previous month.

This economic deterioration adds further pressure on Chinese equities, which have already been struggling due to a weak economy, modest corporate earnings, and increasing geopolitical tensions. The market has been in a downturn since May, and while there are calls for Beijing to implement stronger measures to boost growth, investors remain wary of Chinese stocks. Deep-rooted issues, such as the state's control over the private sector, continue to dampen their appeal.

Monday's market reaction will be focused on Hong Kong, as mainland financial markets are closed until Wednesday due to holidays. The Hang Seng China Enterprises Index has dropped 13% since its May peak, and the CSI 300 Index, which tracks onshore equities, hit its lowest level since early 2019 last week, marking its fourth consecutive annual loss — a record.

"The market is headed for significantly lower levels without substantial new policies," said Gary Dugan, CEO of the Global CIO Office. He added that authorities seem unwilling to launch large-scale fiscal stimulus, a reluctance that dates back to when they sought to deflate a property bubble, leading to the current economic crisis. Measures such as interest-rate cuts and state fund purchases of exchange-traded funds have done little to improve investor sentiment.

The result has been a massive sell-off in Chinese equity markets. Since the market’s peak in 2021, about $6.8 trillion has been wiped off the combined market value of Chinese and Hong Kong stocks.

Saturday's figures suggest that the main pillars of China’s economy — exports and government support — are losing momentum. Industrial output growth was weaker than economists had forecast, extending a decline for the fourth straight month, the longest such stretch since September 2021.

"The economic data probably makes markets feel like the authorities are asleep at the wheel," said Kyle Rodda, a senior market analyst at Capital.Com in Melbourne.

The People’s Bank of China signaled last week that it would intensify its efforts to combat deflation and introduce additional policies to support the economy, as credit data indicated weak private confidence despite previous interest-rate cuts.