Chinese stocks are poised to enter a bear market after one key gauge flirted with the milestone Tuesday, as weak manufacturing data reinforced the pessimism over a market that investors are giving up on.
(Bloomberg) — Chinese stocks are poised to enter a bear market after one key gauge flirted with the milestone Tuesday, as weak manufacturing data reinforced the pessimism over a market that investors are giving up on.
The Hang Seng China Enterprises Index dropped as much as 2.5% on Wednesday, taking its losses from a Jan. 27 peak to more than 20%. The gauge is on track to post its biggest monthly decline since February, having lost more than 8% so far. The Hang Seng Index is also heading for a bear market after declining as much as 2.4% Wednesday.
Data Wednesday showed China’s manufacturing activity contracted for a second month in May, offering the latest proof that the post-Covid recovery is stalling. Global funds are leaving in droves and Credit Agricole CIB warned that a recovery for Chinese assets will be delayed amid growing calls for more stimulus to boost growth. Even then, there’s little indication that would be enough to change sentiment.
Miserable May Is Dashing Hopes for a Rebound in Chinese Stocks
“China’s uneven economic recovery is one of investors’ concerns, along with geopolitics,” said Vey-Sern Ling, managing director at Union Bancaire Privee. “More stimulus from the government may help, but evidence of sustainable longer-term growth will be required to clear investors’ doubts.”
The HSCEI gauge is Asia’s worst performer on Wednesday. Onshore, the benchmark CSI 300 Index slid as much as 1.1% while Hong Kong’s benchmark Hang Seng Index lost more than 2%.
Global funds are on track to turn net sellers of Chinese equities for a second straight month, something that hasn’t happened since the rout in October. Some China bulls, including Citigroup Inc. and Jefferies Financial Group Inc., have started to retreat, trimming portfolio allocations.
A depreciating Chinese currency is also hurting sentiment, with the offshore yuan falling to a six-month low of 7.1198 per dollar on Wednesday. The yield on 10-year Chinese government bonds was little changed at 2.72%.
Bad Data
The manufacturing PMI disappointment is just the latest in a slew of disappointing data from consumer spending to inflation.
“The data will surely have some negative impact on the market, but this is not entirely surprising and the market has already priced in some of the weakness,” said Yan Kaiwen, an analyst at China Fortune Securities. “But the room for a further slide will be limited.”
Geopolitical risks are another headwind. The US accused China of an “unnecessarily aggressive maneuver” after a Chinese fighter jet swerved in front of a US reconnaissance aircraft over the South China Sea. Beijing also recently declined a request from Washington for the countries’ defense chiefs to meet this week.
–With assistance from Tian Chen and Jeanny Yu.
(Updates throughout)
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