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How Chinese stocks affected Haywire: “The market is completely volatile”

Chinese stocks have plummeted recently, but with unprecedented rebounds, some investors were worried about a recovery as much as sold out.

The turmoil follows a year-long slide that was already causing widespread investor losses. The market value of American Depositary Receipts, Hong Kong stocks and other Chinese stocks has evaporated as a global desire for Beijing to pursue a series of regulatory crackdowns. Higher-risk, high-growth stocks have declined.

But this month, the turmoil renewed as investors worried whether China could suffer from Russian-style financial isolation and worse news emerged about regulatory pressures from both Covid-19 and Beijing and Washington. Reached a good pitch.

Tony Chin of Infini Capital Management Ltd recently said that the market was plagued by panic selling as one of the biggest episodes in the history of China’s ADR.

Chin, founder and chief executive officer of Infini, a Hong Kong-based hedge fund manager, said:

According to Goldman Sachs analysts, U.S. institutional investors currently hold about $ 750 billion worth of all types of Chinese equities, while many individuals also have U.S.-listed Chinese equities and exchange-traded funds. I have it.

The latest rout began on March 10, after the US Securities and Exchange Commission tentatively nominated five Chinese companies that failed to inspect audit documents.

On its own, this was a step-by-step step in the gradual separation of the US and Chinese markets, but investors can invest, a problem that exploded when Beijing disbanded its after-school leadership last year. I was urged to reconsider the big question of how many Chinese stocks there are.

A few days ago, Norway’s $ 1.4 trillion sovereign wealth fund abandoned Chinese sportswear stocks because of concerns about forced labor. Ltd

Drive Russia, which is currently “investable”, out of the index of influential emerging markets.

Robin Chu, an analyst at Sanford C. Bernstein, later said, “The fate of the MSCI Russia Index is a vivid and horrifying picture of what could happen if diplomacy collapsed between the United States and China. I drew it. “

Goldman analysts estimated that by the time the weekend came, Chinese tech stocks had lost nearly $ 2 trillion in value from the $ 3 trillion peak in early 2021.

Mass sales continued until the following week as news of the increase in Covid-19 infections and blockades in cities such as Shenzhen added to the darkness. JP MorganChase & Co. Analysts have downgraded dozens of Internet stocks, saying the market focus has shifted to risk management. “May global investors price China’s geopolitical risks.”

The Hong Kong electronic screen displayed the quotes for the famous Chinese stocks on March 15th.


Photo:

Paul Yong / Bloomberg News

Regulators also show few signs of easing for Chinese companies, and the Wall Street Journal reports Tencent Holdings. Ltd

By the end of Monday, March 14, the US ADR had dropped an unprecedented 29% in three sessions. Selling in Asia continued on Tuesday, but US listed stocks recovered slightly.

Then in the middle of the week everything changed. Officials led by President Xi Jinping’s chief economic adviser, Liu He, have pledged to maintain market-friendly policies and keep capital markets running smoothly, with top Chinese policymakers on March 16 We talked about the backup of.

“The Chinese government has never issued anything so powerful to support capital markets,” said Chin of Infini Capital.

According to data from S & P Global Market Intelligence, US-listed Chinese companies earned $ 242 billion in one day, raising the Nasdaq Index by an unprecedented 33%. Blue chips traded like penny stocks: Alibaba Group Holding Ltd

ADR reached a record high of 37%, just surpassing trading volumes by the day the e-commerce giant went public.

“The market is completely volatile,” said Alexander Tavazzi, Global Strategist and Chief Investment Officer for Asia at Picte Wealth Management, following the surge in stock prices.

People passed the Tencent booth at an exposition held in Beijing last year.


Photo:

Mark Schiefelbein / Associated Press

The end result was like a round trip. By the closing price on Friday, March 18, the Nasdaq Golden Dragon China Index was about 3.4% higher than it was two weeks ago, while the Hang Seng Index in Hong Kong was down 2.3% over the same period. , Refinitiv data shows.

Riding a roller coaster shows that Chinese equities are at the mercy of political and news headlines, even though they play a growing role in the international investor portfolio. This is a familiar issue for emerging market investors, but it is not attractive. A company that can be evaluated mainly in the underlying business.

After the cramps, investors are struggling to understand how much they have actually changed.

Chinese officials have previously tried to calm investors, but the pressure did not last long. In July 2021, after crackdowns on guidance, supreme regulators moved to reassure global financial companies, but the real estate sector was at stake — and another high-tech giant, Meituan.,

It repeatedly appeared on the crosshairs of the officials.

There are optimistic reasons for delisting. As another way to access the global capital markets, many companies have or may have a second listing in Hong Kong. He repeatedly said he wanted to solve the problem.

Many investors also argue that investing in China has no fundamental problems and that long-term withdrawals have made some stocks attractive.

Justin Thomson, Chief Investment Officer and International Equity Head of the T. Rowe Price Group, said: Ltd

“The market seems to be pricing with very negative sentiment, ignoring potential positives such as very cheap valuations and opportunities for further easing of the economy.”

People wore protective masks on the streets of Hong Kong on March 15th.


Photo:

Paul Yong / Bloomberg News

Similarly, Conrad Saldanha, senior portfolio manager on the Emerging Markets Equity Team at Neuberger Berman Group LLC, said the massive dismissal of Chinese stocks was wrong, not only for hardware and consumers, but also for some internet companies. We anticipate investment opportunities. business.

But other issues that are squeezing Chinese stocks seem more unmanageable. Markets around the world remain volatile about inflation, rising interest rates and global growth.

Also, the benefits that China enjoyed as a pandemic “first-in, first-out” declined as it experimented with a zero-tolerance approach adapted to Covid-19, targeting a relatively modest 5.5% growth rate this year.

China’s slowdown will impact consumption and profit growth, but the real estate sector has yet to show signs of recovery, said Picte’s Tavazzi.

It can take some time to regain investor confidence. MarkMartyrossian is a board member of Aubrey Capital Management Ltd., a boutique investment company specializing in global growth stocks that manages China-focused strategies.

In late 2021, he met about 30 institutional investors in the United States to market Aubrey, but most of them were worried about further business regulation and his sentiment hasn’t changed since then. Said.

“People just don’t want to take risks, which is understandable,” he said.

Write to Quentin Webb (quentin.webb@wsj.com) and Dave Sebastian (dave.sebastian@wsj.com)

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