Why Are Chinese Stocks Down Today?

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The value of China’s currency, the Yuan, is down 2% against the U.S. dollar in October. President Xi Jinping’s Communist Party Congress is sending Chinese stocks down faster.

Xi was proclaimed a virtual dictator by the Congress, a meeting highlighted by his ousting predecessor Hu Jintao from the room on live TV. His militarization program and government reshuffling are seen by the West as bad for the economy. And Chinese stocks are definitely suffering because of these concerns this morning

Over the weekend Alibaba Group Holding (NASDAQ:BABA) fall 11%, Pinduoduo (NASDAQ:PDD) fell 15%, and Baidu (NASDAQ:BIDU) fell 12%. The moves were partly in fear for the Chinese economy and of a new Cold War. The latter concern could lead to the possible delisting of more Chinese stocks from U.S. exchanges.

All Fall Down?

Not every Chinese stock market is falling as hard though. While Hong Kong’s Hang Seng Index fell 6% to a 13-year low, the Shenzhen and Shanghai markets fell just 2%. Hong Kong is trying to stem its “brain drain,” as talented foreigners and Hong Kong Chinese abandon the city.

Wealth is also fleeing the country, and many engineers are abandoning factories.

The tech sector is taking the biggest hit. Alibaba, for instance, opened on Oct. 24 at just five times its revenue and just 16.4 times last year’s earnings of about $10 billion. Contrast that with Meta Platforms (NASDAQ:META), the least-favored U.S. Cloud Czar, now trading at three times revenue and 12 times earnings. The difference is that Alibaba’s revenue grew nearly 20% last year, but Meta’s not at all.

The losses are general. Pinduoduo lost $15 billion in market capitalization over the weekend. It also trades at five times revenue, despite a growth of 25% and profits amounting to 8% of its sales. JD (NASDAQ:JD) traded at just 40% of its annual revenue as the market opened on Oct. 24.

Chinese Stocks: What Happens Next

China’s economy, and the declining finances of its people, is the only countervailing force left against Xi’s power. Lost savings, unaffordable housing, and falling living standards look like the price of the dictator’s vision.

American investors who believed in the China growth story are also paying that price.

On the date of publication, Dana Blankenhorn held long positions in BABA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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