A gauge of Chinese stocks listed in Hong Kong wiped out an initial gain in post-holiday trading, as manufacturing data sowed doubts over the strength of the nation’s recovery.
(Bloomberg) — A gauge of Chinese stocks listed in Hong Kong wiped out an initial gain in post-holiday trading, as manufacturing data sowed doubts over the strength of the nation’s recovery.
The Hang Seng China Enterprises Index erased a 2.1% advance to close 0.3% lower, with property and consumer stocks leading the drop. Hong Kong’s benchmark Hang Seng Index also gave up most of its gains while onshore markets remain closed for a holiday.
An unexpected contraction in manufacturing in April indicates China’s economy may be struggling to sustain growth momentum, although initial data from the Golden Week holiday showed upbeat travel, shopping and Macau casino figures. Payment misses by developers also muddied the outlook for the property sector amid some signs of continued recovery.
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“The market is applying a higher risk premium to China” due to the nation’s apparent political support for Russia, a trade dispute with the US, and “very little support to the economy” after the post-Covid reopening bounce, said Daniel Murray, deputy chief investment officer and global head of research at EFG Asset Management.
“You probably need one or two of these to come back into fashion and actually that risk premium could close,” he told Bloomberg Television.
Equity investors are growing frustrated as the second leg of the reopening rally remains elusive. The HSCEI gauge posted a 3.8% loss in April as geopolitical tensions and China’s uneven recovery soured investor sentiment, despite some consensus-beating economic data for the first quarter.
The Hang Seng China measure has lost about 10% since Jan. 31 — making it one of the worst performers among 92 global stock indexes tracked by Bloomberg. That’s after a surge of over 50% in the November to January period as the nation emerged from strict Covid-19 curbs.
Signs of stress in the property sector also hurt sentiment on Tuesday, as KWG Group Holdings Ltd. became the latest Chinese developer to default and China Vanke Co. missed earnings estimates.
Foreign investors are trimming their exposure to mainland stocks as they offloaded 6.57 billion yuan ($949 million) of shares via trading links with Hong Kong last week, according to data compiled by Bloomberg.
Investors are also taking some risk off the table ahead of the Federal Reserve’s policy decision this week, with the US central bank expected to deliver yet another rate hike.
Still, some remain optimistic. Daryl Liew, head of portfolio management at SingAlliance Pte. in Singapore, said the asset manager is not altering its China stock positions following the selloff. “China is an easy target ahead of the Fed decision amid global liquidity concerns because it trades on headlines,” but fundamentals are improving there, he said.
Similarly, Citigroup Inc.’s emerging-market equity strategy team also favors China, predicting that the Hang Seng Index will climb to 25,000 by year-end. “We see clear signs of China’s economic recovery, but it is slower than expected,” the strategists wrote in an April 28 note.
–With assistance from Abhishek Vishnoi, Haslinda Amin and Rishaad Salamat.
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