Friday, October 22, 2021

China’s Stocks Among Asia’s Worst Performers Amid Regulatory Scrutiny

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Investors look at computer screens in a stock exchange hall on July 13, 2020 in Nanjing, China’s Jiangsu Province.

Jiang Ning | VCG | fake images

The days of strong sales of Chinese stocks have left two major indexes in the country as the worst performing markets in Asia-Pacific.

At the close of regional markets on Tuesday, the CSI 300, which tracks the largest stocks traded in mainland China, had plunged 8.83% so far this year. Hong Kong’s Hang Seng Index also suffered heavy losses, falling 7.88% in the same period.

“There has not been a single two-day decline (for the Hang Seng index) since the financial crisis that has exceeded the magnitude of the last two days,” analysts at Bespoke Investment Group wrote in a note.

Other major indexes on the continent, such as the composite of Shanghai and Shenzhen, were also in negative territory for the year, among the few major markets in Asia and the Pacific to lose ground so far this year.

On the other hand, the MSCI Emerging Markets Index has also fallen into negative territory during the year. Chinese internet giants such as Tencent, Alibaba and Meituan were among the top 5 components of the index as of June 30.

The drops come as Chinese regulators continue to intensify their oversight in sectors ranging from technology to education to food delivery. The increased scrutiny spooked investors and sent many fighting for the exit.

The Hong Kong and Chinese markets were mixed on Wednesday morning, struggling to rebound from declines in recent days.

At the beginning of the second half, all major Chinese indices and the Hang Seng were in positive territory for the year. The Shenzhen component was up 4.78%, while the CSI 300 index was up just 0.24% at the end of June. Hong Kong’s Hang Seng Index also rose 5.86% in the same period.

Chronology of events

A painfully sobering message might be: “You can get the company listed out of China, but you can’t get China (the risks) out of the company.”

Vishnu Varathan

Head of Economics and Strategy, Mizuho Bank

Beijing’s intentions “cannot be faulted on the merit,” Mizuho Bank’s Vishnu Varathan said in a note on Tuesday, arguing that the authorities’ concerns about sectors such as education were aimed at social welfare, while technology is ” apparently trained in troubling data rights / abuse issues. “

Still, he acknowledged the “unintended consequences” of Beijing not properly timing and adjusting the execution of its intentions.

Read more about China from CNBC Pro

“To the (global) private investors who have been brutally blind to the rude shocks suffered by many of these internationally listed Chinese companies, a painfully sobering message may be: ‘You can take the China-listed company, but you can’t. take China (risks) out of the company, ‘”Varathan said.

JPMorgan Sees ‘Opportunity’ in Mainland China Stocks

Even in the current market turmoil, Alex Wolf of JPMorgan Private Bank sees opportunities in mainland-listed stocks that are harder for retail investors to access compared to Hong Kong-listed stocks.

Most Chinese stocks, one sector among those most affected by the recent market downturn, are listed overseas in the US and Hong Kong and those stocks tend to be owned largely by foreign investors due to the difficult that is access for mainland Chinese investors, Wolf said. , who is head of investment strategy for Asia at the firm.

We think the A shares represent a good opportunity amid this change and amid … some of the uncertainty that we’re seeing.

Alex Wolf

JPMorgan Private Bank

“From the perspective of onshore investors, A shares, we believe that since they are majority nationally owned, they are often linked to political initiatives,” he explained. “They are usually protected from these flows.”

Wolf cited Beijing’s policy initiatives, such as a shift toward decarbonization and localization, as measures likely to benefit mainland Chinese-listed companies.

“We think A-shares represent a good opportunity in the midst of this change and in the midst of … some of the uncertainty that we are seeing,” he said.

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