The latest hot stock trade to emerge from China has found little enthusiasm among international investors.
(Bloomberg) — The latest hot stock trade to emerge from China has found little enthusiasm among international investors.
A rally in bank and broker shares briefly sent dozens of firms up by the 10% daily limit in Shanghai this week, with punters in Hong Kong piling into bullish derivatives. The reason? Speculation that Beijing will provide funding support to financial firms as part of its pledge to shore up state-owned enterprises. The catalyst? Anticipation ahead of a seminar held by Shanghai’s stock exchange operator.
Global money managers have this quarter reduced their holdings of Chinese bank stocks by more than any other industry group, according to a Morgan Stanley note dated May 11. Financial-services firms and banks are among their biggest underweights, according to the data, which covers 200 actively-managed funds based outside China with global, emerging-market, Asia ex-Japan and greater China equity mandates.Â
While the frenzy was short-lived, it illustrates the widening divide between global asset managers and traders in China. Foreign access to key corporate information, consultants and on-the-ground experts is being restricted. Investing in state-run companies with close ties to the Communist Party may also be problematic for US funds navigating sanctions as tensions between Washington and Beijing run high.
Here’s my roundup of the week’s key developments for China markets:
Italy out
Italian Prime Minister Giorgia Meloni has signaled she intends to pull out of China’s Belt and Road Initiative. As the only Group of Seven country to have entered the investment pact, Italy is under US pressure to ditch it. Separately, top officials from Washington and Beijing sat down for talks in Vienna.
- Italy Intends to Exit China Belt and Road Pact as Ties Sour
- Top US and Chinese Officials Meet in New Bid to Ease Strain
Dark horse
Li Yunze will lead a new regulator overseeing thousands of banks, insurers and trust firms. Top priorities for the 52-year-old — a little-known local government official — include pushing through an anti-corruption campaign and tackling a hefty pile of provincial debt.
- China Names Li Top Financial Regulator in Surprise Move
Mortgage costs
The cost to borrow overnight in Hong Kong jumped to a 16-year high — a consequence of currency interventions from the city’s defacto central bank that have mopped up interbank liquidity. The one-month and three-month tenors are also rising, which will increase mortgage costs for millions of homeowners.
- Hong Kong Overnight Funding Costs Surge to Highest Since 2007
Imports, loans
China’s consumer prices barely rose in April and borrowing slumped, showing domestic demand may be weaker than thought. The data has intensified expectations of more policy easing in the coming weeks, with some economists predicting a rate cut as soon as this quarter.
- China’s Weak Inflation, Borrowing Show Economic Recovery Waning
State secrets
Authorities raided Capvision Pro Corp.’s offices and accused the global expert network of leaking state secrets. Beijing’s crackdown on perceived spying activities is unnerving people who advise global investors and help them understand China.
- Xi’s Latest Crackdown Snares Experts Hired by Hedge Funds, CEOs
… and three things to watch for next week
- The People’s Bank of China will have its monthly liquidity operation on Monday. This is when the central bank sets its closely-watched policy interest rate. Will it hold or cut?
- Big Tech earnings are due, including Tencent Holdings Ltd., Alibaba Group Holding Ltd., Meituan and Baidu Inc.
- The China reopening trade has been almost entirely unwound in the government bond market, which is on a tear this quarter.
For a deeper dive into where China stands now — and where it’s going next — sign up to the Next China newsletter.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.