China stocks tumble as Moody's outlook downgrade deepens investors' economic fears

• The CSI 300 Index hit fresh four-year lows Tuesday, trading at its lowest since February 2019. 
• The stock moves followed Moody's downgrade of China's credit outlook.
• China's post-pandemic rebound has been a disappointment, and its economy faces multiple hurdles.

China's benchmark CSI 300 stock index tumbled 1.9% to fresh four-year lows Tuesday, hitting its lowest level since February 2019 following Moody's downgrade of the country's credit outlook.

The index has lost 12% year-to-date. The Hang Seng China Enterprises Index also declined 1.6% Tuesday to its lowest since November 2022. The MSCI China index fell more than 2% to its lowest since November 2022. 

The stock sell-off comes as investors fear further weakening of the world's second largest economy after Moody's lowered its outlook for China's sovereign bond rating from stable to negative, highlighting the economic turmoil facing the country.

Moody's pointed to Beijing's use of fiscal stimulus to prop up local governments — the country's on track for record bond issuance in 2023 — and a worsening real estate crisis as risks to stability. 

Chinese officials said they were "disappointed" with the downgrade, and that the country would remain resilient. 

Since officials lifted China's zero-COVID policies, the country's rebound has been a disappointment. A slate of headwinds have materialized, including declining foreign trade, highly indebted property developers, deflation, demographic challenges, and risks of "Japanification," as JPMorgan strategists said in a note in August.

Data released last week showed China's manufacturing and services activities contracted in November, and the readings reinforced the government's case to prop up the economy with further fiscal stimulus. 

"The outlook change also reflects the increased risks related to structurally and persistently lower medium-term economic growth and the ongoing downsizing of the property sector," the ratings agency said.

In August, Chinese officials had urged economists not to portray data unfavorably, the Financial Times reported, and to instead "interpret bad news from a positive light."