The decline in Chinese stocks accelerates as foreign investors sell

The decline in Chinese stocks accelerates as foreign investors sell

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The brutal sell-off in Chinese stocks has worsened in recent days, as international investors betting on a recovery lose confidence that economic stimulus from Beijing is on the way.

The Hang Seng China Enterprise Index, a closely watched measure of large Chinese listings in Hong Kong, has fallen about 11 percent so far this month after losing 14 percent last year. The benchmark CSI 300 index of locally traded stocks fell more than 5 percent, after taking into account the decline in the value of the renminbi against the dollar.

The economic downturn in January has confounded expectations by Wall Street banks, including JPMorgan and Goldman Sachs, that China’s stock market is set for a recovery in 2024.

The head of trading at a Hong Kong investment bank said international investors “just gave up” after Premier Li Chiang’s speech in Davos on Tuesday lacked any hint of new government measures to boost the economy or financial markets.

He added that institutional investors were cautiously buying some big Chinese tech stocks like Tencent and Alibaba during the first few days of the year, but “within three or four sessions their prices were already underwater, so they decided to unload that – and retail investors.” He follows”.

Column chart of daily net foreign inflows via Stock Connect (Bn RMB) showing early GDP announcement spurs foreign selling of Chinese stocks

Foreign investors, who by the end of 2023 had sold about 90 percent of the $33 billion worth of Chinese stocks they bought earlier in the year, have continued to sell this year. Outflows more than doubled on Wednesday after Beijing confirmed that China’s annual growth was the slowest in decades and revealed that the country’s population decline will accelerate in 2023.

Nearly 33 billion renminbi ($4.6 billion) of foreign money has already flowed out of China’s stock market this year, according to Financial Times calculations based on data from a stock trading platform in Hong Kong.

Unless there is a sharp reversal, offshore investors are set to end January as net sellers of Chinese stocks during the opening month of the year for the first time since the scheme began in 2014.

Grace Tam, chief investment adviser at China Investment Bank, said Lee’s surprise announcement – a day ahead of schedule – that the economy grew last year by an “estimated” 5.2 percent, was taken by investors as a sign of senior leaders’ confidence in the Chinese economy despite… Of constant difficulties. Hong Kong at BNP Paribas Asset Management.

“The market took that as a sign that China is very comfortable (with the current growth rate) right now, and that we won’t see any major stimulus anytime soon,” Tam said.

The risk of losses for foreign investors buying stocks in Shanghai and Shenzhen was exacerbated by the weakness of the renminbi, which fell 1.3 percent to 7.1957 renminbi to the dollar this month.

Many Western investment banks have favored Chinese stocks for a rebound this year. Strategists at Goldman Sachs have set a 12-month target of 3,900 for the CSI 300, which would require an upside of more than 19 per cent from the gauge’s current level.

Despite skepticism among some investors, now is still “the right time for a more positive turnaround in the A-list equity market,” said Meng Li, China equity strategist at UBS Securities.

This is because nominal GDP, which was hit by deflationary pressures last year, was expected to turn more positive in 2024 as the current government stimulus measures take effect.

The long process of “liquidation” of positions accumulated by fund managers after the market surged to 2021 highs is set to end this year as well, he said.

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