Only six months since the China reopening trade triggered the world’s best stock gains, investors have stopped believing in the market’s upward trend.
(Bloomberg) — Only six months since the China reopening trade triggered the world’s best stock gains, investors have stopped believing in the market’s upward trend.
A death cross — where a short-term moving average crosses below a longer-term equivalent — has recently appeared on the MSCI China Index. While chart purists might argue that the pattern is stronger when both lines are sloping somewhat downwards (like in September), it’s yet another in a string of signals affirming the prevalence of bearish sentiment in Chinese markets.
Take positioning. Short interest in the iShares MSCI China ETF, the largest China-focused fund listed in the US, is climbing steadily this month as traders increase their hedges. Flows into Chinese equities are moderating, according to a Goldman Sachs Group Inc. note this week, even as they improve for European and emerging-markets equity funds. (China is no longer the most preferred destination in EM.)
Performance is starting to disappoint, especially relative to other markets. While the MSCI China is still up about 38% from its 11-year low in October, it’s lagging all but a handful of the 92 benchmarks tracked by Bloomberg in April.
While few doubt China’s post-Covid economy is doing better than expected — key headline numbers like retail sales, loan growth and exports blew past estimates for March — obsession over pockets of weaknesses in the data and the central bank’s cautious stimulus steps are drowning out the good news.
One concern centers on liquidity, which remains a key driver of sentiment in Chinese markets, as I wrote last week. What if new credit isn’t flowing into the economy but into markets instead, the thinking goes. What if rather than cutting interest rates, China’s central bank tightens financial conditions to reduce risk, like it did in early 2021? The market is ruled by fear of what could still go wrong.
Here’s my roundup of the week’s key developments for China markets:
Consumption rebound
Economic growth is beating estimates as residents spend far more on dining out, jewelry and clothing. Government officials said this year’s rebound is “not yet solid” and they’ll consider more measures to boost consumption. It’s unlikely to be monetary stimulus: the central bank pledged to keep interest rates at an appropriate level.
- China’s Consumer-Driven Growth Gives Boost to Global Economy
- China’s Central Bank Vows ‘Appropriate’ Rates in Lesson From SVB
Property turnaround
The housing market is turning a corner after Beijing increased support for struggling property developers and cities made it easier to buy homes. The sector grew 1.3% in the first quarter, its first expansion in almost two years. One hedge fund which made a killing buying developer debt is now selling.
- China Property Turns The Corner, Boosting Economy’s Outlook
- Hedge Fund That Gained 523% on China Property Bonds Is Selling
Biden curbs, Moscow reliance
The Biden administration aims to sign an executive order by mid-May that will limit US investment in the fields of semiconductors, artificial intelligence and quantum computing. The draft will target potential new investments rather than existing ones, and will cover venture capital, private equity and joint ventures. Separately, Moscow is worried about its dependence on Chinese tech.
- Biden Aims to Unveil China Investment Curbs With G-7 Backing
- Russian Memo Said War Leaves Moscow Too Reliant on Chinese Tech
IPOs
New primary deals in the works include Alibaba Group Holding Ltd.’s grocery arm and CXMT — a chipmaker that rivals Samsung Electronics Co. and may be valued at almost $15 billion. Chinese investors have shown enthusiasm for national champions, or perceived beneficiaries of Beijing’s efforts to cultivate a homegrown chip industry to rival the US.
- Alibaba’s Grocery Arm Is Said to Gear Up for Hong Kong IPO
- Chinese Chip Rival to Samsung Seeks IPO at $14.5 Billion Value
HSBC’s battle
The clash between HSBC Holdings Plc and its biggest shareholder is becoming increasingly heated. Ping An Insurance Group Co. said a spinoff of the bank’s more profitable Asian operations is “necessary”, while HSBC opposed the plan and said it would destroy shareholder value.
- HSBC’s Fight With Top Shareholder Intensifies Before Key Vote
Demographics
It’s official: India has surpassed China as the world’s most populous country, the United Nations said, after about 23 million babies were born last year. That’s more than twice the number of newborns in China, whose population is shrinking for first time in six decades.
- India Needs More Than a Bigger Population to Top China’s Economy
… and two things to watch for next week
- A busy earnings calendar onshore, with giants like Kweichow Moutai Co., Ping An Insurance and Foxconn Industrial Internet Co. (a stock that’s doubled this year) due to report.
- Stock pickers may find better prospects in Hong Kong this earnings season. The degree to which Hang Seng Index companies move in lockstep is the lowest since early 2022, meaning results are more likely to drive share prices than external events.
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