As China’s power crisis drains energy from a lacklustre equity market, any more shocks to the economy spells bad news
- The ongoing power crisis has proved to be a drag on the CSI 300 Index, which has declined 8.6 per cent from a July high
- The diversion of electricity to household use has caused prices of key commodities to rise, further eroding the margins of many downstream industries
The CSI 300 Index of the biggest onshore stocks dropped 1.1 per cent last week, taking its decline from a July high to 8.6 per cent. Huatai Securities warned of wilder swings, which could sap demand for equities, while Guosheng Securities said that a decreasing risk appetite could hurt sentiment.
The CSI 300 fell in three out of the past four major power outages since 2000, according to Haitong Securities. The gauge dropped 5.2 per cent last year when Chinese provinces cut supply to meet lower emission targets, slumped 13 per cent in 2010 because of energy conservation efforts, and 66 per cent in 2008 when cold weather spiked energy demand. The only gain was in 2003, when the index rose 8.3 per cent despite supply shortages.
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Historically, coal stocks have outperformed all other sectors during past power shortages and consumer stocks also tend to perform well due to higher probability of inflation, while financial stocks have lagged, according to Essence Securities.
