Chinese Stocks in Hong Kong Drop as Property Woes Sour Sentiment

(Bloomberg) — Chinese stocks listed in Hong Kong began the week with losses as persistent concerns about the health of the property sector offset optimism spurred by signs of stabilization in some other parts of the economy.

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The Hang Seng China Enterprises Index slid as much as 1.7% before paring some losses. On the mainland, the CSI 300 Index fell to its lowest level this year before trading up 0.4%. A gauge of real estate shares slumped more than 2%. Distressed Chinese developer Country Garden Holdings Co. faces two more tests Monday: an initial deadline to pay dollar bond interest and the end of creditor voting on its request to extend payment on a yuan note.

Monday’s price action comes even as recent economic data has been encouraging and Beijing has taken a series of market measures to revive investor confidence. Still, foreign funds have sold onshore Chinese stocks on a net basis for six straight weeks. Their growing exodus from local assets is diminishing the market’s clout in global portfolios and accelerating its decoupling from the rest of the world.

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The CSI 300 measure fell 0.7% on Friday as foreigners sold even after data on retail sales and industrial production for August exceeded estimates.

“Though the economic data showed some recovery, the crux of the issue for the market at present is property, and despite the raft of measures to prop-up sales, the recovery in prices and volumes seems limited to large cities,” said Yang Zhiyong, fund manager at Beijing Gemchart Asset Management Co.

China’s economic slump due to years of Covid restrictions, the crisis in its property market and persistent tensions with the West have weighed on its stock market. The concerns have helped make the “avoid China” theme one of the biggest convictions among global fund managers in Bank of America’s latest survey.

Meanwhile, continued losses are stoking optimism among some local investors that the bearishness has likely reached extreme levels. Down more than 7% in 2023, the MSCI China Index is staring at a third straight year of losses that will mark the longest losing streak in over two decades.

“We met with investors in Beijing and Shanghai last week, and many of them said: “There is no need to be more bearish at the current levels,” BofA strategists, including Winnie Wu, wrote in a report. Some investors with whom we spoke believe the Chinese authorities are keen to defend a floor for the stock/bond/currency markets, and the most bullish investor we met expected a potential 3-6 month rally.”

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–With assistance from John Cheng.

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