Investors look at computer screens at a stock exchange on July 13, 2020 in Nanjing, China’s Jiangsu Province.
Jiang Ning | VCG | Getty Images
The days of massive selling of Chinese equities left two major indices in the country among the worst performing markets in Asia-Pacific.
As regional markets close on Tuesday, the CSI 300 – which tracks the biggest listed stocks in mainland China – had plunged 8.83% so far this year. Hong Kong’s Hang Seng Index also suffered heavy losses, falling 7.88% over the same period.
“There has not been a single two-day drop (for the Hang Seng Index) since the financial crisis that has exceeded the magnitude of the past two days,” analysts at Bespoke Investment Group wrote in a note.
Other major continental indices such as the Shanghai Composite and the Shenzhen Component were also in negative territory for the year, among the few major Asia-Pacific markets that have lost ground since the start of the year. .
In addition, the MSCI Emerging Markets index also fell into negative territory for the year. Chinese internet giants such as Tencent, Alibaba and Meituan were among the top 5 constituents of the index, as of June 30.
The declines come as Chinese regulators continue to step up their scrutiny in areas ranging from technology to education and food delivery. The heightened scrutiny has scared investors and sent many scrambling for the exit.
Hong Kong and Chinese markets traded mixed on Wednesday morning, struggling to recover from declines in recent days.
At the start of the second half, all major Chinese indices and the Hang Seng were in positive territory for the year. The Shenzhen component was up 4.78% while the CSI 300 index was only 0.24% up at the end of June. Hong Kong’s Hang Seng Index also rose 5.86% over the same period.
Chronology of events
Beijing’s intentions “cannot be blamed on merit,” Mizuho Bank’s Vishnu Varathan said in a note Tuesday, saying authorities’ concerns over sectors such as education were aimed at social welfare, while the technology is “apparently trained in worrying data rights / abuse issues.”
Still, he recognized the “unintended consequences” of Beijing failing to properly schedule and regulate the execution of its intentions.
“For private (global) investors brutally caught off guard by the brutal shocks suffered by many of these internationally listed Chinese companies, a sobering message may be: ‘You can remove the company’s listing from China, but you can’t take China (risks) out of business, ”Varathan said.
JPMorgan sees ‘opportunity’ in actions on the continent
Even in the current market turmoil, Alex Wolf of JPMorgan Private Bank sees an opportunity in mainland listed stocks, which are more difficult to access for retail investors compared to those listed in Hong Kong.
Most Chinese stocks – one of the sectors hardest hit by the recent market crisis – are listed overseas in the United States and Hong Kong and these stocks tend to be largely owned by foreign investors due to of the difficulty of access for mainland investors, said Wolf. , who is responsible for the Asia investment strategy within the company.
“We like A shares on a relative basis just because they have less exposure to the internet, they are also less exposed to foreign flows,” Wolf told CNBC “Street Signs Asia” on Tuesday.
A shares refer to shares of companies based in Mainland China listed on the Shanghai Stock Exchange or the Shenzhen Stock Exchange.
“From the perspective of onshore investors, A shares – we believe given that they are majority owned by national interests – are often tied to political initiatives,” he explained. “They tend to be shielded from these flows.”
Wolf cited Beijing’s policy initiatives such as a move towards decarbonization and localization as initiatives that could benefit listed companies in mainland China.
“We think the A-shares represent a good opportunity in the midst of this change and in the midst of… some of the uncertainty that we see,” he said.