China stock gauge drops 20% from 2023 peak as pessimism abounds

(Bloomberg) – A key indicator for Chinese stocks was poised to enter a bear market as a slow economic recovery, a weaker yuan and tensions with the United States left traders with little cause for concern. ‘buy.

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The Hang Seng China Enterprises Index fell 1% on Tuesday, marking the fifth day of declines and taking losses from a January 27 peak to around 20%. The HSCEI indicator and Hong Kong’s benchmark Hang Seng Index were among the worst performing major equity indicators of the month.

The grim milestone in the bear market is a blow to investors who were betting on a recovery after the failed reopening rally in late January. Some Chinese bulls are retreating in frustration, cutting portfolio allocations as they come to terms with a lackluster economic recovery and modest earnings.

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“There’s just no positive news and it’s really difficult for investors,” said Willer Chen, senior analyst at Forsyth Barr Asia Ltd. The Sino-US relationship is not helping as no major icebreakers have been sighted.

In a sharp reversal of fortunes since the start of this year – when buy calls were dominant – investors see a lack of catalyst for gains as the post-Covid recovery falters and regulatory uncertainties still abound. Rows with the United States over a wide range of issues continue to make investors wary, with Beijing’s rejection of a US request for a meeting of defense chiefs adding to the jitters.

READ: China rejects meeting of US defense chiefs amid sanctions

Pessimism is everywhere. Foreign funds are on track to reduce their holdings of mainland equities for a second straight month, something that hasn’t happened since the October rout. Domestic fund sales fell to levels close to those seen after the market collapsed in 2015 as investors remained risk averse, Shanghai Securities News reported on Tuesday.

The HSCEI Gauge and Hang Seng Index are down more than 7% so far this month and have erased about half of the gains seen during the November-January reopening euphoria. While some sectors related to artificial intelligence and public companies have had bouts of rallying, they have not been enough to lift the overall market.

The onshore CSI 300 index fell as much as 1.2% on Tuesday, extending losses after erasing all of its gains for 2023.

All attention is now on May’s reading from China’s manufacturing and services industry, due on Wednesday, after last month’s shock failures accelerated the market slowdown. Economists expect manufacturing to remain in contraction, while expansion in services has likely slowed.

But as major stock indicators reach oversold levels, with their relative strength indexes hovering around 30, some are feeling a bottom.

“While we see eager investors throwing in the towel at this point, I think the selloff is overdone,” said David Chao, global market strategist for Asia-Pacific at Invesco Asset Management in Singapore. “The Chinese economy is not heading into a recession, as recent market moves suggest.”

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