Fund managers in Hong Kong appear perplexed by the weakness in Chinese stocks after the market got off to its worst start since 2016. Some bearish investors hoped they were wrong about the gloom.
“I have met with many investors in Hong Kong over the past few weeks and sentiment is negative,” Winnie Wu, head of China equity strategy at Bank of America Securities, said in a note on Thursday. .
“Almost every day this year, people have asked, ‘Why is China in the doldrums again?'”
The reasons range from hawkish US monetary policy, geopolitical tensions, disappointment with China’s relentless crackdown on corruption and policies, to speculation about liquidation.
The MSCI China Index, which covers more than 700 stocks listed both domestically and internationally, has fallen 9% so far this month, its worst start since 2016 and added to a three-year losing streak.
The index has fallen more than 60 percent from its all-time high in February 2021, wiping out US$1.85 trillion in market capitalization from index members.
A BofA Securities report says some funds were misguided by their bullish view of China’s post-COVID-19 economic recovery a year ago, and their current bearish view of the Chinese economy is misplaced. He says he doubts there is a difference.
‘Chronic disappointment’ with Chinese stocks prompts sharp cuts in capital allocation
‘Chronic disappointment’ with Chinese stocks prompts sharp cuts in capital allocation
But key data this week showed the economy continued to struggle through the end of last year, with consumer prices still in deflationary territory and gross domestic product growth below consensus. Sentiment worsened further after the central bank unexpectedly decided to keep interest rates unchanged, leading to selling.
“What is indisputable is that China is in the midst of a structural slowdown that will lead to economic activity in 2023 being much slower than most expected, which will affect the outlook for 2024. will continue to have an impact,” Rhodium analysts said in a note. recently.
Still, BofA’s Wu said some veteran Chinese investors believe the fundamentals of China’s economy are not as bad as the stock price suggests.
Despite concerns about top-down market performance, investors remain positive on strong Chinese stocks, Wu said. Citing recent meetings with clients, he added that more than half of the single-stock long ideas were from China, primarily the internet sector.
Chinese stock collapse exposes risks from $30 billion ‘snowball’ in derivatives
Chinese stock collapse exposes risks from $30 billion ‘snowball’ in derivatives
He said that historically, if investors bought the MSCI China Index at this valuation multiple, they would have received an average return of 12% over the week.
“Equity investors are pricing in a more pessimistic outlook for the domestic economy than investors in other markets,” Wang said.
“We believe the risk-reward is attractive at this level given the low valuation multiple, weak investor position, and potential for support from the ‘varsity team.’”