A turbulent year for investing in China - 27/05/22

2022 has been a turbulent year for China and its Economic outlook, with foreign investors dumping a record $6billion worth of Chinese shares in the first three months of the year. The Chinese Nasdaq Golden Dragons index of large Chinese tech groups listed in New York has suffered a loss of around a quarter of its total value. In comparison, the US’s S&P 500 and tech-focused Nasdaq Composite have risen by roughly 37% and 52% respectively.

Not only does the statistical data speak volumes about the state of a Chinese investment outlook but the investment giants at JPMorgan downgraded 28 of the 29 internet stocks they cover to neutral. A JPMorgan analyst commented that investors are recommended to avoid Chinese markets for the next 12 months, until some stability begins to return.

Not only are foreign investors getting cold feet, but investors closer to home are also pulling out of China. An executive within a Hong Kong global hedge fund said that the start of the week commencing the 14th of March was similar to the leverage-fueled stock bubble pop in 2015.

What has caused this reaction on a global level?

There is a combination of reasons political and socio-economical that has caused such a dramatic increase in volatility and concern within the Chinese market. Beginning this period of turmoil was the Russia-Ukrainian war. This not only caused a global sense of precariousness, but China’s unique relationship with Russia has seen their name be mentioned with Russia’s regarding the conflict.

Compounding this issue has been the re-emergence of COVID-19 within some regions of China. Mainland cities such as Shenzhen and Shanghai have been struck with an outbreak of the virus. China has a very strict ‘zero-covid’ strategy, which saw 60 new cases within 24 hours cause tight restrictions introduced across Shenzhen.

Turning Point or False Hope

All this being said, there was some hope created when the rising volatility and uncertainty was addressed by Liu He, a vice-premier and President XI Jinping’s closest economic adviser announcing the government would take measures to boost the economy while introducing policies that are favorable for the market.

This saw a considerable bounce back, but there are still major uncertainties surrounding the market as previously mentioned by JPMorgan and others. One analyst with a Beijing-based consultancy even said that these statements were positive but if they fail to deliver over the course of the month, there could be another drop in the market.

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