Gloom grips China investors like never before ahead of Congress

Gloom grips China investors like never before ahead of Congress

“I don’t think this is going to be a big event that will change the market’s perception of China,” said Tom Masi, a New York-based portfolio manager at GW&K Investment Management.

“We are looking to see a change in direction, but I don’t think all of this will be clear in the next few days, instead it’ll unfold over the next maybe three to six months.”

Turnover in the world’s second-biggest stock market has dropped to the lowest levels this year ahead of the congress, signalling investor confidence remains low amid an uncertain outlook for the economy and markets.

‘Technical rebound’

Dip buyers emerged this week after the CSI 300 sank to its lowest levels since April 2020. The gauge jumped more than 2 per cent on Friday amid a rebound in Asian and US equities.

That’s done little to spur optimism among long-term investors, many of whom are opting to stay on the sidelines.

“While a technical rebound is possible, there is a lack of drivers for a sustainable rebound as the visibility for an economic recovery is still low,” said Xiadong Bao, a fund manager at Edmond de Rothschild Asset Management, adding that Friday’s rebound in China was a technical one following a similar move in the US stock market.

Beijing’s relentless pursuit of its strict COVID-19 policy remains the biggest bugbear for investors like Bao. Rising infections and a string of commentaries in the Communist Party’s People’s Daily newspaper defending the strategy have reinforced the worst of investor fears.

While authorities have been rolling out policies to support growth, COVID-19 lockdowns have stifled consumption. The economy is set to expand at a slower pace than the rest of developing Asia for the first time in more than three decades.

Any change in COVID-19 policy may only take place after the National People’s Congress in March next year, according to Nomura Holdings analysts, when key government posts are appointed and the political reshuffle is “fully completed.”

“There is very little China can do to boost the confidence of foreign investors meaningfully when it comes to economic management and achieving better growth,” said Diana Choyleva, chief economist at Enodo Economics.

“Beijing will need to go overboard with stimulative policy action to alter perceptions. This is unlikely to be forthcoming.”

‘Sick’ market

Even if the pandemic eventually wanes, investors worry China’s heated rivalry with the US over tech and geopolitical ambitions will continue to cast clouds over its assets.

Hao Hong, partner and chief economist at Grow Investment Group, said the market is “sick” due to a range of factors from the US ban on semiconductor-related technology exports, pandemic restrictions, and an unravelling of the property bubble.

The Biden administration unleashed sweeping restrictions to curb China’s access to US technology, a move that could deter Xi’s goal to make the nation self-sufficient in the industrial supply chain. An acceleration of tensions surrounding Taiwan is another concern.

“The longer-term risk is actually not zero-COVID. It will be more about the US-China tension,” Nicholas Yeo, head of China equities at abrdn plc, said on Bloomberg Television this week.


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