A house in Nanjing, eastern China’s Jiangsu province, last month. Cost Photo/NurPhoto (via Getty Images)
Chinese stocks are wrapping up another dismal week, with most mainland companies listed in Hong Kong languishing at the bottom of the year’s global stock index rankings.
The past few days have been tough, with Tokyo overtaking Shanghai to become Asia’s largest stock market and India’s valuation premium over China breaking records. Locally, the collapse of Chinese stocks has dealt a major blow to the domestic asset management industry, with the number of investment trusts closing reaching a five-year high.
The Hang Seng China Enterprise Index has already fallen 11% in 2024. After four consecutive years of record losses, the slump is reinforcing structural changes that are turning everyone from active money managers to passive funds against the world’s second-largest corporate index. stock market.
The Nasdaq Goldlong China Index fell as much as 2.2% at the start of U.S. trading on Friday, the fifth straight day of declines.
A total of about $6.3 trillion has disappeared from the market capitalization of Chinese and Hong Kong stocks since peaking in 2021, highlighting the challenge faced by Beijing as it seeks to stem the decline in investor confidence. ing. Authorities have ruled out using large-scale stimulus to revive the struggling economy, leaving traders wondering when the situation will improve.
“What we’re seeing so far this year is actually a continuation of last year,” John Lin, chief investment officer of China equities at AllianceBernstein, said in a Jan. 17 interview on Bloomberg TV. ” he said. “These toothpaste-squeezing stimulus policies have so far failed to turn around the bottom-up fundamentals underlying sectors such as the real estate sector.”
“Waiting game”
The HSCEI gauge has plunged more than 6% this week and is on track to record its worst January performance in eight years. On the mainland, the CSI 300 index has declined in nine of the past 10 weeks. Signs that state funds may have bought exchange-traded funds (ETFs) and China’s largest brokerage firm’s decision to halt short sales to some clients also failed to stem the decline in onshore benchmarks.
The headwinds hitting the market are well documented. China’s real estate sector remains troubled, deflationary pressures are mounting, and the long-standing feud between China and the United States is set to end with a US presidential election scheduled for later this year. Uncertainty about the trajectory of US interest rates and the threat of an imminent collapse in domestic equity derivatives have increased investor anxiety in recent days.
Asian fund managers cut their allocations to China by 12 percentage points, leaving them with a net underweight of 20%, the lowest in more than a year, according to Bank of America’s latest research.
Managers of benchmark-tracking funds sold a net $300 million in stocks traded in mainland China and Hong Kong this month, according to a Morgan Stanley analysis. This is a reversal from the second half of 2023, when it bought $700 million on a net basis even as stock indexes fell.
“China is a waiting game and we keep waiting,” said Mark Matthews, head of Asia research at Julius Baer Bank, which largely avoids Chinese stocks.
The Chinese government’s efforts to reassure investors have been met with skepticism from investors, many of whom worry that authorities are playing catch-up. The People’s Bank of China took steps last month to inject money into the financial system, defying widespread expectations that it would cut its key policy interest rate on Monday.
Addressing leaders at the World Economic Forum this week, Chinese Premier Li Qiang said China is capable of achieving its growth target of around 5% in 2023 without injecting “massive stimulus” into the economy. It was advertised.
The loss of confidence is now so severe that even attractive valuations are of little help. The MSCI China Index has never been this cheap compared to the S&P 500 Index in terms of future earnings expectations. Still, bets on a short-term rebound did not materialize.
“The government seems very optimistic about the economy,” said Xin Yao Ng, Asia equity investment director at Abdon. “Markets may not even believe the 5% growth number. They do have a much more negative view of the economy, and the Chinese government needs massive fiscal spending. I definitely believe that.”
— With assistance from Sangmi Cha, April Ma, Hideyuki Sano, Carmen Reinicke, and Cristin Flanagan