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Chinese regulators sought to calm markets on Monday as stocks and the yuan extended losses after a weak start to the year amid weak economic data and geopolitical uncertainty ahead of Donald Trump’s inauguration.
Mainland China’s benchmark CSI 300 index edged down 0.2% on Monday, and has fallen 4.1% in the first three trading days of the year, marking the worst start to 2025 for major Asian indexes.
Small-cap stocks in the CSI 2,000 index have fallen 6.6% since the start of the year. Hong Kong’s Hang Seng Index fell 0.4% on Monday and is down 1.2% so far this year.
The decline came as Chinese stocks held meetings with international investors, the central bank reiterated its determination to keep the yuan stable and Trump threatened to sharply increase tariffs on Chinese exports.
“Everyone wants to know what Trump 2.0 will bring at the moment,” said Jason Lui, head of Asia-Pacific equity and derivatives strategy at BNP Paribas. “It’s reasonable for investors to try to take profits.”
The yuan fell to a 15-month low of 7.33 yuan against the dollar on Monday, although the People’s Bank of China kept the onshore yuan’s daily trading range stable. Analysts say selling pressure on the yuan is often linked to downward pressure on Chinese stocks.
CICC strategist Liu Kaiwen said that weak manufacturing data, the U.S. dollar index hitting a two-year high and Trump’s imminent return have all intensified the pressure of capital outflows in the Chinese stock market.
On Sunday, the Shanghai and Shenzhen exchanges said they held meetings with foreign institutions over the weekend to “solicit opinions and suggestions” on the recent trend of China’s stock market, trying to reassure investors that the country’s economy is supported by “solid fundamentals and resilience.”
Despite the selling pressure on the yuan, the central bank on Monday kept the daily fixing rate (the 2% fixing rate for two-way trading of the yuan against the dollar) at 7.19 yuan.
Its newspaper, the Financial Times, said the central bank would “resolutely prevent the risk of exchange rate overshooting and maintain the basic stability of the RMB exchange rate.”
It added that the central bank’s past “experience with multiple rounds of appreciations and devaluations” showed it had “sufficient” tools to keep the exchange rate “basically stable”.
In another sign of softening sentiment, investors continued to buy long-term sovereign debt as worries about weak domestic consumption bolstered bets that China’s central bank will ease monetary policy further.
China’s 10-year government bond yield fell 0.015 percentage points to 1.61% on Monday after hitting a record low below 1.6% last Thursday. Bond yields are inversely related to prices.
The start to the year has been weak despite Beijing’s stated desire to boost domestic consumption after a protracted housing crisis.
China’s rubber-stamp parliament is due to meet in March to unveil an economic policy agenda for what is expected to be a difficult year.
“In terms of key things to look for in 2025… we think investors need to pay more attention to consumption,” said Winnie Wu, chief China equity strategist at Bank of America, adding that government support for the private sector and youth employment will be crucial important.
Despite a rough start to 2025, analysts noted that China’s stock market performed strongly in 2024 after a long period of downturn, with the CSI 300 Index rising 14.7% at the end of the year.
“We do think the worst of the derating is behind us,” Wu said.
