Authorities are considering intervening to stop the collapse of the Chinese stock market, which is trading at 2019 lows in the case of the CSI 300, with a stimulus package worth 260 billion euros .
The country is going through a complex crisis, with many aspects: real estate , the fall in foreign investment and lower than expected growth, although it remains in line with its objective, which is combined with lower confidence in local companies after years in those in which the country has adopted volatile policies.
This cocktail has led to heavy losses for their stock markets, which in the case of the CSI 300 amount to 44% from the highs of 2021. Also for investment funds that try to take advantage of the opportunities generated in this market.
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Investors continue to reduce exposure to the Chinese stock market
The Spanish investor has 60 products at his disposal that focus their strategy on the Asian giant’s equities, according to Morningstar data, and none are capable of saving the collapse that this market has suffered since 2021. These funds have accumulated average losses of 54% since then, higher than those of the CSI 300 itself, despite the fact that there has always been a certain consensus among experts that the Chinese stock market deserved to have a place in portfolios due to its potential future growth. In nine of these products, losses even exceed 60%.
Although the country’s authorities have already tried to shore up its market with other support measures in the past, investors continue to reduce exposure to the Chinese stock market and in a longer period of time, of five years, the funds do not either. They are spared from falls, although they are contained up to 1.38% on average, per year. In this period, there are managers capable of generating positive returns.
This is the case of Vitruvius Greater China Equity B USD , which offers an annualized return of 8.75% over five years, or Schroder ISF All China Equity B Acc and Mirae Asset ESG China Growth Eq A , which generate annualized returns greater than 4 % in this period.
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Only when looking in the long term does the picture improve: in the last ten years, Chinese stock funds have maintained average annualized returns of 2.2%.
Doubts about the effectiveness of long-term stimuli of the Chinese stock market
The new aid package being considered by Beijing creates some skepticism regarding its success among experts. The Chinese authorities would be considering a package of measures of up to two trillion yuan (about 260 billion euros) coming mainly from offshore accounts of state companies to buy shares in mainland China through the link offered by Hong Kong, according to Bloomberg.
“We consider that the impact will be positive but marginal, since the key remains in the economic fundamentals,” assess experts from the Swiss private bank Julius Baer. “The potential support package should be able to stop declines in the short term and stabilize markets in the Lunar New Year, but state purchases alone have historically had limited success in changing market sentiment if they do not go followed by new measures,” says Marvin Chen, strategist at Bloomberg Intelligence . Along the same lines, Renta 4 analysts recall that “previous packages have been unable to regain market confidence.”
The growth of its economy will continue to be closely monitored. The consensus expectation collected by Bloomberg indicates that China will grow at a rate of less than 5% this year. Specifically, it is expected to grow by 4.6%. “The new 2024 growth target set by the authorities will determine the extent of fiscal and monetary support to the economy. This is a point on which we must be vigilant, especially given the presidential elections to be held in Taiwan next year” , indicated in Ostrum AM (Natixis IM).
Still, “the long-term outlook for Chinese stocks is promising,” says John Lin, chief investment officer of Chinese equities at AllianceBerstein. ” Equity valuations are cheap compared to the last decade and also relative to the MSCI World index of developed markets,” he notes. From this firm they see opportunities in companies that, in addition to having attractive valuations, are aligned with the commercial and political objectives of the government; for example, in companies focused on technological security and national decarbonization.
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First published in elEconomista.es. A third-party contributor translated and adapted the articles from the originals. In case of discrepancy, the originals will prevail.
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