Up until a few weeks ago, investors’ bets on the nation’s economic revival after the relaxation of pandemic restrictions had made Chinese equities among the best-performing in the world over the preceding six months.
However, CNN estimates show that since April 18, when China disclosed data on its first-quarter economic production, the value of equities of Chinese firms throughout the globe has decreased by nearly $540 billion. Due to China’s uncertain economic situation, escalating geopolitical tensions, and Beijing’s crackdown on foreign consulting businesses, investors reduced their exposure to the country.
Since April 18, the Nasdaq Golden Dragon China Index has decreased by more than 5%. The Hang Seng (HSI) Index for Hong Kong has fallen 5% as well. Additionally, the Shenzhen Component Index and the Shanghai Composite Index have also decreased by 3% and 6.5%, respectively. The Nasdaq Composite increased 4% during the same time frame.
The selling is not only of stocks. Over 2% has been lost by the Chinese yuan in the last month, a gauge of market mood. In foreign exchange trade on Wednesday, the yuan fell below the critical barrier of 7 to the US dollar, breaching it for the first time this year. On Friday, the value of the currency fell even more, reaching its lowest point in over six months.
On May 8, 2023, the sun sets over Shanghai’s Lujiazui Financial District.
On May 8, 2023, the sun sets over Shanghai’s Lujiazui Financial District.
Getty Images/VCG/Visual China Group
“Investors are still wary about China for two key reasons. First of all, the rebound hasn’t been strong, according to Brock Silvers, chief investment officer at Kaiyuan Capital, a Hong Kong-based company.
The nation’s “fundamental investability,” which he referred to as dangers related to geopolitics and Chinese policy, is another issue for international investors, he added.
Over the last several months, tensions between the United States and China have risen. Sanctions on important Chinese sectors, such as chip manufacturing, have increased by Washington. Beijing has shown a growing mistrust of foreign corporations by tightening down on global consultancies and last month extending the nation’s anti-espionage statute.
“Unfortunately, tensions between China and the US have increased after two decades of mutual benefit,” said Michael Kelly, global head of multi-asset at PineBridge Investments, a New York-based asset management company.
sporadic recovery
On expectations that the nation will abandon its expensive zero-Covid policy, Chinese equities started to rise sharply in the latter part of October. Beijing abandoned the severe regulations at the beginning of December, which sparked an immediate uptick in economic activity.
The second-largest economy in the world is recovering unevenly, despite the first quarter’s strong consumption-led growth of 4.5%.
China revealed a set of economic figures for April on Tuesday, much to the dismay of investors. Following the publication of the data, Nomura and Barclay revised down their projections to 5.5% and 5.3%, respectively. However, UBS and Goldman Sachs maintained their annual growth forecasts at 5.7% and 6%, respectively.
April saw the consumer price index rise at its weakest rate in more than two years, 0.1%. The producer price index, which tracks prices at the factory gate, fell by 3.6%, the most since 2013 and highlighting the danger of deflation. In April, imports fell 7.9%, confirming indications of weak domestic demand. In terms of employment, the unemployment rate for those aged 16 to 24 reached a record high of 20.4% in April.
The “faltering” real estate market in China, which used to be the engine of the country’s economy, is still a serious concern, according to Silvers. The industry has contributed as much as 30% of China’s GDP during the last several decades.
Following the lifting of pandemic limitations, the National Bureau of Statistics said on Wednesday that new house prices increased by barely 0.3% in April after increasing by 0.4% in March, indicating that the pent-up demand may be waning. Prior to February, the typical decrease in housing prices had lasted around 18 months.
crackdown on spying
Businesspeople are uneasy about a campaign against consultancy and due diligence businesses that has been launched as officials try to attract back foreign investment.
Beijing revised its counter-espionage legislation this month, expanding the range of actions that may be construed as spying. Authorities have conducted a number of raids on consultancies in recent months, including Capvision, Bain & Company, and Mintz Group.
They claimed that Shanghai- and New York-based Capvision was involved in the dissemination of sensitive military data to outside parties. A countrywide inquiry into whether the consulting sector has been utilized for espionage has also been announced by the authorities. According to Neil Thomas, a fellow of the Center for China Analysis at the Asia Society Policy Institute, “Beijing’s moves to restrict foreign access to domestic information and business intelligence make equity investment in China more challenging.”
“A typical example of how Xi’s leadership is creating political risks that are making it harder for foreign firms to do business in China” is the increased emphasis on national security in the formulation of economic policies.
Fund managers and experts claim that because of the crackdown, it is far more difficult for foreign investors to get regular information about Chinese firms that they would ordinarily consider when making decisions.
Beijing has also blocked access from outside to several Chinese data sources, including the Wind database, which contains important financial data.
closing a store
Some research and investment companies are closing their doors.
According to media sources, Forrester Research, a US-based research and consultancy business focusing on technology, intends to lay off the bulk of its analysts in China. Forrester responded to CNN by announcing that as part of a worldwide restructure, it was closing its operation in China.
The main factors for the shift, according to a spokeswoman, are the unstable economy and our continuous product evolution. According to the spokesman, the company’s China business is “not material” in terms of its overall income, and its worldwide research team will take care of its customers there. One of the biggest pension funds in the world, the Ontario Teachers’ Pension Plan, has disbanded its China equities investing group in Hong Kong.
A spokeswoman for the pension fund, Dan Madge, told CNN that “we will no longer have country-focused stock-picking teams based in Asia, resulting in the departure of five of our colleagues in our Hong Kong office.”
However, some investors are certain that China will recover.
While there is no denying that China’s stock market has had a significant correction, Kelly at PineBridge Investments noted that China has previously led most major stock markets out of their October lows.
Global investors would need to invest in Chinese assets more and more when “cracks appear in Western economies,” he warned.