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Gloom pulls Chinese investors more than ever before Congress


(Bloomberg) – Sunday brought a historic moment for Xi Jinping’s political legacy, but investors were less enthusiastic about the prospect of a market turn: Chinese stocks have never performed. such poor performance before any Communist Party Congress.

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The Shanghai Composite Index has lost more than 5% in the past month, its worst performance before Congress since its inception in 1991. The yuan is down more than 10% this year against the dollar, heading towards worst annual performance since 1994. China’s dollar junk bonds have fallen to near record lows amid a widening real estate crisis.

The escalation of Sino-US tensions and Beijing’s repeated support of its steadfast Covid Zero policy have prompted foreign investors to rush to seek exits ahead of the pull-out leadership summit. twice a decade, saw a net loss of $875 million in domestic shares this week, the most since July.

While the focus of President Xi’s speech will be on whether his emphasis leans on economic growth from hedging risks, most market watchers see a turnaround. clearly unlikely and expect the volatility to continue in the coming months. There is little hope the event will change the fate of the blue-chip CSI 300 Index, which is down 22% this year and headed for its first consecutive annual loss since 2011.

“I don’t think this is going to be a major event that will change the market perception of China,” said Tom Masi, portfolio manager at GW&K Investment Management. “We’re looking for a change in direction, but I don’t think all of this will be apparent in the next few days, rather it will happen within the next three to six months.”

Turnover on the world’s second-largest stock exchange fell to its lowest level this year ahead of the congress, suggesting investor confidence remains low amid uncertain market and economic outlook. sure.

‘Technical recovery’

Dipping buyers emerged this week after the CSI 300 sank to its lowest level since April 2020. The index rallied more than 2% on Friday amid a rally in Asian and US stocks.

That does little to boost the optimism of long-term investors, many of whom are choosing to stay on the sidelines.

“While there may be a technical recovery, there is still a lack of momentum for a sustained recovery because of the economic resilience,” said Xiadong Bao, a fund manager at Edmond de Rothschild Asset Management. still low. is a technique following a similar move in the US stock market.

Beijing’s relentless pursuit of its strict Covid policy remains the biggest obstacle for investors like Bao. The rising contagion and a flurry of commentary in the Communist Party’s People’s Daily defending the strategy have reinforced investors’ worst fears.

While authorities are rolling out policies to support growth, the Covid shutdown has stifled consumption. The economy is set to expand at a slower rate than the rest of developing Asia for the first time in more than three decades.

According to analysts at Nomura Holdings Inc., any change in Covid policy can only take place after the National People’s Congress in March next year, when important government posts are appointed. responsibility and the process of political reform is “completed”.

“There is little China can do to meaningfully boost foreign investor confidence when it comes to economic management and gains,” said Diana Choyleva, chief economist at Enodo Economics. grow better”. “Beijing will need to step up stimulus action to change perceptions. This is unlikely to happen any time soon.”

Market ‘sick’

Even if the pandemic finally subsides, investors fear China’s stiff competition with the US over its technological and geopolitical ambitions will continue to cloud their assets.

Hao Hong, partner and chief economist at Grow Investment Group, said the market was “ailing” due to a range of factors from the US ban on exports of semiconductor-related technology, restrictions on on the pandemic and the real estate bubble.

The Biden administration has rolled out sweeping restrictions to limit China’s access to American technology, a move that could thwart Mr. Xi’s goal of making the country self-sufficient in industrial supply chains. The rise in tensions around Taiwan is another concern.

“The real long-term risk is not Zero-Covid. It will be more about US-China tensions,” Nicholas Yeo, head of China securities at abrdn plc, said on Bloomberg television this week.

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