China Stock Selloff Pauses After $446 Billion in Value Wiped Out

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APRIL 26, 2023

MSCI China Set for Worst April Since 2004

A rout in Chinese stocks paused after a $446 billion wipeout in value for mainland shares this month, but a meaningful rebound may be hard to come by as geopolitical tensions simmer.

The benchmark CSI 300 Index ended little changed Wednesday. The MSCI gauge of Chinese shares advanced as much as 1.6% after a six-day slide, though it’s still headed for its worst April since 2004. The offshore yuan rebounded from an almost seven-week low versus the dollar.

Traders are seeking positive catalysts after Chinese gauges lagged most global peers in April. All eyes are on earnings as well as the Politburo, the nation’s top decision-making body, which is expected to meet this week to discuss economic priorities. A strong rebound in tourism during the Golden Week holiday could also help lift sentiment.

April’s rout has tested bulls’ optimism that Chinese stocks will soon resume their second leg of the reopening rally. US-listed Chinese stocks have lost over $100 billion in market value this month.

What’s worrying investors is the government’s focus on geopolitical issues and agendas that can be at the expense of economic growth, according to Huatai Securities (USA). There’s a lack of “animal spirits” and policy positives, which makes a rebound challenging, the brokerage said in a note.

Sentiment had taken a turn for the worse in recent days following a report that the US is preparing more steps to curb Beijing’s tech ambitions. That came on top of signs of an uneven recovery, with many investors questioning the attractiveness of Chinese assets when the nation’s economic ties with the US are quickly deteriorating.

US investors are still “hesitant” toward investing in China, said Jae S. Yoon, chief investment officer of New York Life Investment Management. It’s “not clear how the US government in the next year or two would suddenly make statements on China, meaning, don’t invest in this and don’t invest in that.”

In another sign of shifting preference, HSBC Global Research said funds in Asia are continuing to gravitate toward India at the expense of China.

Some others are more optimistic. Goldman Sachs Group Inc. said domestic equities could regain momentum on “very strong profit growth in China.” About 90% of companies so far have given positive profit alerts relative to the historical average of 60-70%, Goldman strategist Sunil Koul told Bloomberg Television.

Kweichow Moutai Co., China’s largest stock by market value, on Tuesday announced first-quarter net income growth that exceeded its guidance. The country’s biggest banks are set to announce earnings this week.

The market is showing signs of stabilizing in the short term as it had been oversold, said Yan Kaiwen, an analyst at China Fortune Securities Co., referring to Wednesday’s price action. “From a longer perspective, the economy is expected to see an even stronger rebound in the second quarter,” helping to make yuan-denominated assets more attractive, he said.

Meanwhile, a good reading from the travel booking data for the Golden Week holiday suggest the recovery of consumption has more legs to go at least for the second quarter, according to Chris Liu, senior portfolio manager at Invesco.


Courtesy/Source: Bloomberg