The bull run on Chinese recovery ends as investors pull out. China’s economic woes continued this week as the MSCI index lost as much as 2.6% on Tuesday. This is the sixth consecutive day of decline as Chinese markets witnessed their longest losing run since October. Traders speculated a fresh round of geopolitical tensions between America and China. This prompted the selloff from foreign investors in China. Investors expect the US government to limit investments in certain critical sections of the Chinese economy.
Along with the tensions with the US, speculators are also worried about the veracity of certain macroeconomic indicators in the Chinese economy. The data provided by the CCP has always erred on the positive side. This has the investors worried as there are very few independent sources to verify government claims.
There are also fears that a fresh round of Covid infections might force the country into another lockdown. All these factors have contributed to one of the biggest drops in the Chinese economy in recent years.
Winne Wu, Bank of America Corp strategist, wrote, “European investors that we met last week are frustrated with the sluggish performance of the China markets, similar to HK/China investors.”
He cited geopolitical tensions as the primary reason that the investors were refusing to wait and invest in China long-term.
Worst-hit sectors in the losing run
The Chinese stocks on the Hang Seng China Enterprises Index listed in Hong Kong lost 5 percent of their value. Overseas funds sold financial assets worth $711 million through Hong Kong trading links. This could amount to a total outflow of $1.7 billion in two sessions.
Tech and Pharma companies witnessed their biggest sellout on the HSCEI gauge. The Hang Seng tech index slid by 3.5% on Tuesday. To make the sentiment worse, Canada’s third largest pension fund, The Teachers’ Pension Fund, shut its Hong Kong operations as it decided to not invest equity in Chinese markets.
Kerry Goh, chief investment officer at Kamet Capital Partners summarised the market situation “Foreign funds are preferring to buy non-direct beneficiaries of China’s recovery rather than stocks listed in China or Hong Kong, They still don’t trust China or there may be sensitivities around investing there.”
