Unlock Editor's Digest for free
FT editor Roula Khalaf has chosen her favorite stories in this weekly newsletter.
Chinese authorities' promise of “strong” measures last week was the loudest attempt yet to halt a stock market slide that has wiped out about $2 trillion in value. For many investors at the Goldman Sachs conference in Hong Kong, that pledge was too little, too late.
More than 40% of those surveyed at a U.S. Bank session on Chinese stocks on Wednesday said they believed China was “uninvestable.” This came just a day after the country's deputy prime minister publicly called for “stronger and more effective measures to stabilize markets and boost confidence.”
“So many Hong Kongers are voting against it.” [on Chinese equities] Timothy Mo, chief Asia-Pacific equity strategist at Goldman Sachs, added that the poll results were “symbolic” of the difficulties facing China's stock market.
Traders, asset managers and hedge funds told the Financial Times that after a decade of foreign inflows into Chinese markets, global investor confidence has been shaken by three years of severe losses. It was said that they were saved only by a temporary increase that quickly disappeared.
Aversion to Chinese stocks among global investors has been driven by lackluster economic growth, an unresolved real estate sector crisis, overwhelming government support for the market, and deteriorating diplomatic relations between China and the United States. It has become even more entrenched over the past 12 months.
As a result, the benchmark MSCI China Stock Index is now down more than 60% from its peak in early 2021, reflecting a loss of more than $1.9 trillion in market capitalization over the period.
“The global investors we talk to are generally from China,” Goldman's Mo said. “That's his 3 percent of the benchmark [index] However, it can take up 10% of your time. . .And if there is a gathering, you can come back. [later]”.
This is a stark contrast to attitudes toward China just a few years ago, when foreign investors feared they would miss out on the country's rapid economic growth and domestic consumption driven by rapidly expanding e-commerce platforms. It is true.
Investors are now worried that President Xi Jinping's focus on stability and national security is shrinking once-prosperous technology companies and accelerating financial decoupling from the United States. Explaining. Meanwhile, efforts to move away from growth dependent on real estate are weighing on the economy, pushing down the profits and stock prices of listed companies.
But the stock market crash has lowered valuations enough that some Wall Street banks are inviting investors to jump in. JPMorgan expects the MSCI China index (already down about 10% since the start of the year) to end the year. This represents an increase of more than 30% from Friday's benchmark closing level.
But offshore investors trading Chinese stocks through Hong Kong's Stock Connect program continue to dump listed stocks in Shanghai and Shenzhen, as evidenced by 11.8 billion yuan of net sales last month. This is the first time since the system began in 2014 that foreign investors have been net sellers of Chinese stocks in the first month of the year.
Global asset managers said it would take more than just low valuations to justify the effort needed to start bargain hunting in the mainland market.
“There has been a lack of foreign interest for a long time and nothing has changed,” said the Asia-Pacific head of a major UK asset management firm. “China is much cheaper, but there are still a lot of caveats.”
But traders in Hong Kong say a small number of investors are starting to show interest, with hedge funds hoping to capitalize on the economic recovery, accumulating indirect exposure through option contracts in recent weeks. added.
Even after the crushing defeat, China still accounts for about a quarter of the MSCI Emerging Markets Index, making it difficult for investors using the benchmark to ignore. Still, some investors are starting to focus on stock valuations to eliminate China's weight.
“Is China cheap? Is China unloved? Yes,” said one emerging market portfolio manager. Even with a strategy to eliminate benchmark exposure to China, he said, “it is possible to allocate separately” to Chinese stocks, which currently trade at a deep discount to other emerging markets and the United States. said.
However, many foreign investors still remain concerned about risks such as the possibility of a US-China conflict in the Taiwan Strait and a more aggressive foreign policy by the US government if Donald Trump secures re-election as US president later this year. I am concerned about this.
They worry that these risks could easily derail the Chinese market's rally.
George Rivadas, a manager at Upslope Capital, a Colorado-based hedge fund, expects many of his peers to buy Chinese stocks at rock-bottom prices given current prices, but the U.S.-China relationship claimed that they did not realize how much had changed in recent years. .
“People will talk about everything except what I think are the obvious headwinds,” he says. “It's not just a small disagreement [between the two superpowers]. That's a potentially serious risk. ”
