Really a Black Monday for Chinese stock exchanges in what turned out to be the toughest selloff since 2008: the Hang Seng closed down 5% to its lowest since 2016, Shanghai by 2.6%. Sales were concentrated on the real estate sector (Country Garden lost 21.5%), due to a sharp contraction in mortgages in February and on the technology sector, due to the fear of a delisting of Chinese companies from Wall Street. Add to this that, after the Hong Kong lockdown last month, over the weekend was added that of Shenzhen, where strong restrictions on travel were applied to 17.5 million inhabitants of the Chinese technology center. Distance learning has also returned to school.
They do not help the geopolitical tensions over the war in Ukraine, as Russia has asked China for military equipment to support the invasion of Europe, a US official told the American media, causing concern in the White House that Beijing may undermine efforts to help Ukrainian forces defend their country. US National Security Advisor Jake Sullivan, who is meeting with China’s top diplomat Yang Jiechi in Rome today, warned that Beijing will “absolutely” pay the consequences if it intends to help Moscow evade Western-imposed sanctions.
Chinese banks disbursed new loans of 1.230 billion yuan ($ 195 billion) in February, down sharply from a record of 3.98 trillion in January and below analysts’ expectations, according to data released by the People’s Bank of China. PboC). A decline in February was expected as Chinese banks tend to anticipate loans at the start of the year to gain market share. Ting Lu, Nomura’s Chinese chief economist, explained that this sharp decline in medium- and long-term household lending was the first since the sector data began to be released in 2007 and in line with a 40% contraction. of the sales of new homes of the top 100 real estate groups in the two-month period January-February.
Today, the Hang Seng Tech sector index plunged more than 9%, the most notable decline since it was established in July 2020, Bloomberg writes. And the Dragon Index, which replicates the securities of Chinese companies listed on Wall Street (depositary recepits), has left 10% on the ground in two consecutive days, this has never happened in its 22-year history.
Russia’s request to China for military assistance for the war in Ukraine has accelerated sales by no means, reports Bloomberg. Because Chinese stocks would risk being included in the sanctions list. Added to this is a number of regulatory concerns. Last week, the US Securities and Exchange Commission drew up a first list of Chinese stocks as part of a squeeze on companies that refused to open their books to US regulators, increasing the risks of a short-term delisting.
“At this stage, we see the technology sector still very vulnerable,” wrote Jun Li, chief investment officer of Power Pacific Investment Management, adding that the company is avoiding investing in Chinese (US-listed) ADRs. “It is very difficult to assess the risk profile at this stage,” added the specialist. The onshore yuan (traded in the country) also fell to its lowest level in the last month, indicating a tightening of sentiment towards Beijing.
The Golden Dragon index, which is traded on the Nasdaq, has lost 34% year to date and 67% at one year. Today, Alibaba Group left 10.9% on the ground, or 30.4% year to date and 64% over the last year at 1.74 billion Hong Kong dollars, while Tencent Holdings, which has based in Shenzhen, and down 9.8% today alone, 27% since January and 47% over the past 12 months.
“We don’t see a great short-term catalyst for Chinese equities, although earnings results may create some price volatility,” wrote Bloomberg Intelligence strategist Marvin Chen. The historic decline in tech stocks is putting Chinese bulls in turmoil, whose numbers had grown this year as strategists were betting on a market rebound thanks to the easing of policies by the People’s Bank of China. Goldman Sachs Group strategists mitigated their cautious optimism on Chinese stocks by cutting estimates on the MSCI China index.
“We continue to overweight China based on target growth thanks to a policy of easing, depressed valuations and sentiment and subdued investor positioning,” wrote Goldman Sachs, but cut the valuation of the expected 12-month p / e from 14. 5 to 12 times for geopolitical risks. The MSCI China Index has seen its valuation more than halve from its February 2021 peak. The indicator trades at around 9 times its 12-month earnings estimates, compared to an average of 12.6 times over the past five years. .
“Valuations are at an all-time low and we continue to believe these are good entry points for investors who can look beyond short-term volatility,” wrote Ivan Su, analyst at Morningstar Investment Management Asia. “The decline that we are seeing in Hong Kong is most likely just related to sentiment. There is nothing fundamentally different in the underlying assets,” the expert added. (All rights reserved)
