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The punitive sell-off in Chinese stocks has worsened in recent days as foreign investors who had bet on a rebound lost faith that a stimulus package from the Chinese government was on the horizon.
The Hang Seng China Enterprise Index, which tracks trends in large Chinese companies listed in Hong Kong, has fallen about 11% so far this month, after falling 14% last year. The CSI300 index, a benchmark for domestically traded stocks, fell more than 5%, taking into account the depreciation of the yuan against the dollar.
January's economic downturn disrupted expectations from Wall Street banks, including JPMorgan and Goldman Sachs, that China's stock market was poised for a recovery in 2024.
The head of trading at a Hong Kong investment bank said he was worried about foreign investors after Premier Li Qiang's speech at Davos on Tuesday gave no hint of new government policies to boost the economy and financial markets. “I just threw in the towel,” he said.
He said institutional investors had been cautiously buying big Chinese tech stocks such as Tencent and Alibaba in the first few days of the year, but “they've already been underwater after three or four trades, so they're not willing to let it go.” “I did it,” he added. It continued.”
By the end of 2023, foreign investors had sold about 90% of the $33 billion worth of Chinese stocks they bought earlier this year, and they are continuing to sell this year. On Wednesday, year-to-date outflows came after the Chinese government confirmed that the country's annual growth rate is the lowest in decades and revealed that the country's population decline will accelerate in 2023. It has more than doubled.
Nearly 33 billion yuan (about $4.6 billion) of foreign funds have already flowed out of China's stock market this year, according to calculations by the Financial Times based on data from Hong Kong's Stock Connect trading scheme.
Barring a sharp reversal, offshore investors will end January as net sellers of Chinese stocks in the first month of the year for the first time since the regime began in 2014.
Prime Minister Li's surprise announcement, a day ahead of schedule, that economic growth last year was an “estimated” 5.2%, investors said the top leader remains confident in China's economy despite continuing difficulties. said Grace Tam, the firm's chief investment adviser. At BNP Paribas Asset Management, Hong Kong.
“The market took this as a sign that China was very comfortable.” [with the current growth rate] For now, we don't expect to see any major economic stimulus soon,” Tam said.
The risk of losses for foreign investors buying stocks in Shanghai and Shenzhen is exacerbated by the yuan's depreciation of 1.3% against the dollar this month to 7.1957 yuan.
Many Western investment banks had expected Chinese stocks to recover this year. Goldman Sachs strategists have set a 12-month target for the CSI300 index at 3,900, which would require an increase of more than 19% from the index's current level.
Meng Lei, China equity strategist at UBS Securities, said despite skepticism among some investors, now is still a “good time to turn more positive on the A-share market.” .
This is because nominal gross domestic product (GDP), which suffered from deflationary pressure last year, is expected to turn even more positive in 2024 as existing government stimulus measures are implemented.
He said the long “unwinding” of positions fund managers built up after the 2021 market peak is also set to end this year.