Chinese, Hong Kong Markets Slide Amid Policy Uncertainty, Manufacturing Decline

Chinese and Hong Kong stock markets declined following cautious remarks from policymakers who promised support by controlling competition but refrained from introducing new stimulus measures, exacerbating investor concerns amid a fourth consecutive month of contracting manufacturing activity. The Shanghai Composite, Hang Seng, and CSI300 indexes all suffered losses, with real estate and commodity sectors particularly hard hit due to weak demand and policy uncertainty. Meanwhile, ongoing US-China trade talks remain stalled, adding further geopolitical uncertainty and dampening investor optimism. In contrast to the equity market decline, Chinese investors are increasingly withdrawing from gold-backed ETFs at record levels, reallocating funds into local stocks, especially as the CSI300 index experienced its best monthly gain in nearly a year. This shift reflects investors' desire to capture stronger equity returns amid government efforts to curb price wars and industrial overcapacity, despite gold's strong year-to-date performance and ongoing geopolitical risks. However, overall ETF flows in Chinese equities have recently remained negative, indicating a cautious market sentiment amid the broader economic challenges.