China's Stock Markets Tumble Ahead of Lunar New Year Holiday Closure
Chinese stock markets are facing renewed pressure as trading closed for the Lunar New Year break. Investors saw declines on February 15, with both the Shanghai Composite and Shenzhen Component indices falling by over 1%. The holiday closure, running from February 16 to 23, comes at a time of weakening sentiment and deteriorating earnings forecasts.
The recent market downturn follows a period of uneven performance. Over the past 12 months, the Shanghai Composite rose by roughly 17.9%, while the Shenzhen Component gained about 11.2%. In contrast, the FTSE China 50 Index—tracking major Hong Kong-listed Chinese firms—grew by just 5-10%, weighed down by global trade tensions and weaker liquidity in Hong Kong.
Weak domestic demand and reduced government stimulus have added to the slowdown. Corporate earnings expectations for the fourth quarter of 2025 have worsened sharply, according to Morgan Stanley. Analysts now await holiday consumption data, which could provide clues about economic resilience during the market closure.
Amid the downturn, some investors are turning to inverse ETFs to profit from the decline. The ProShares UltraShort FTSE China 50 ETF (FXP), which aims for twice the inverse (-2x) return of the FTSE China 50 Index, rose by 1.84% on February 14. Other bearish options include the ProShares Short FTSE China 50 (YXI) and the Direxion Daily FTSE China Bear 3x Shares (YANG).
Despite last year's partial recovery, Fidelity International notes that Chinese stocks remain undervalued. However, the latest rally has lost momentum, leaving markets vulnerable as traders step away for the Lunar New Year.
With markets closed until February 23, attention will shift to holiday spending figures. The data may reveal whether consumer activity can offset broader economic challenges. Until then, investors are watching inverse ETFs and earnings reports for signals on China's financial outlook.
