China Stocks Decline as Concerns Over Israel-Hamas Conflict Weigh on Global Growth Outlook

Stocks in mainland China experienced their most significant decline in two weeks as trading resumed following a week-long holiday, with concerns mounting about the potential impact of the Israel-Hamas conflict on the global economic outlook. Hong Kong's trading was delayed due to a typhoon and a black rainstorm warning but was set to open in the afternoon.

At the break, the Shanghai Composite Index retreated by 0.7% to reach 3,088.94, while both the CSI 300 Index and the Shenzhen Composite Index recorded a decline of 0.6%.

The banking sector felt the downward pressure, with China Minsheng Bank falling by 3.7% to 3.70 yuan, and China Merchants Bank slipping by 1.2% to 32.60 yuan. Brokerage firms also faced declines after the Shanghai and Shenzhen exchanges dispelled speculations of reintroducing the trading mechanism that allows for the sale of stocks on the same day as purchases. Everbright Securities lost 1.9% to 16.34 yuan, while Cinda Securities slumped by 4.1% to 16.47 yuan. Other companies that faced declines included Jiangxi Copper, which retreated by 2.8% to 18.72 yuan, and Ganfeng Lithium, sliding 2.5% to 43.47 yuan.

The ongoing Israel-Hamas conflict, now in its third day, led to a surge in crude oil prices of as much as 5.4%, nearly reaching a one-year high of US$87.24 a barrel. The rise in oil prices has the potential to stoke inflation and influence the timing of global central banks' policy tightening decisions. As a result, the haven trade gained momentum, with spot gold prices rising by 0.9%.

"We have seen wild swings of global assets during the October holiday, and the backdrop of high-interest rates overseas is still out there," said Wei Wei, an analyst at Ping An Securities. "That still will weigh on risk appetite, including for Chinese stocks. Still, any further pullback in Chinese stocks will be limited as stabilization in the economy has emerged."

Traders are closely monitoring data that could provide further evidence of China's economic recovery. Official reports on credit supply and inflation are expected this week, and the third-quarter earnings season is set to commence.

China's government reported a 4.1% increase in tourism revenue during the golden week holiday, reaching 753.4 billion yuan compared to the pre-pandemic level in 2019.

In Hong Kong, the morning session was canceled due to the issuance of a T8 typhoon signal and a black rainstorm warning as Typhoon Koinu approached the city. Trading was set to resume at 2 pm following the downgrade of the warning before noon. The Hang Seng Index had experienced a decline of 1.8% the previous week.

Most major Asian markets remained closed for public holidays, with Japan and South Korea among the countries observing holiday closures. Australia's S&P/ASX 200, however, saw an increase of 0.4%.

By fLEXI tEAM