Stocktake: Investors spooked by China’s authoritarian turn

The investment risks posed by authoritarian regimes have become blindingly obvious this year, so investors baulked last week at the prospect of Xi Jinping potentially ruling China for the rest of his life.

Xi’s historic securing of a third term was no surprise, but his consolidation of power – China’s 24-member politburo is now stacked with Xi loyalists – was more complete than expected. The market reaction was swift. The Nasdaq Golden Dragon index, which tracks US-listed shares in Chinese companies, suffered its largest one-day fall in history, falling 14.4 per cent, while Hong Kong’s Hang Seng index endured its biggest one-day drop since November 2008.

Chinese stocks recovered following soothing words from officials, but the situation remains delicate. Officials backing market reforms including central bank governor Yi Gang and Premier Li Keqiang have been pushed aside. Li Keqiang’s replacement, Li Qiang, is inexperienced and best known for stringently enforcing Xi’s unpopular and economically ruinous zero-Covid policy in Shanghai.

Zero-Covid, growing tensions with Taiwan, an increasingly autocratic leadership style – it’s hardly surprising investors are increasingly spooked by China.

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Chinese companies look cheap, but sceptics note the same was true of Russian firms before February’s Ukrainian invasion. For investors, the fear is that Chinese stocks are increasingly cheap for a reason.