China’s unloved stocks 2 per cent away from bearish trap as Fed policy, bubble worries spur flight to safety

Trading volume in Shanghai and Shenzhen shrank on March 17 to the lowest level this year, showing cooling enthusiasm among investors

Technical indicators are worrisome too, as indices approach bear-market tipping point, or have breached those markers

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People walk with umbrellas in Lujiazui financial district in Pudong, Shanghai, on March 5. Photo: Reuters

Published: 7:30am, 22 Mar 2021Updated: 7:30am, 22 Mar 2021

China stocks, a core holding for the world’s biggest money managers, are suddenly unloved after a five-week slump. The US$10.8 trillion market is edging closer to a bear-market tipping point amid bubble and Fed policy risks while trading has cooled, and the safest old-economy stalwarts are the only game in town.

The Shanghai and Shenzhen bourses have lost the equivalent of US$140 billion in market value since the CSI 300 Index peaked on February 10, lately hurt by gyrations in the US bond market. On March 17, their combined turnover shrank to 691 billion yuan (US$106.2 billion), the lowest level this year.

As caution prevailed, local investors have turned to the safest stocks for cover. Since the CSI 300 Index peaked on February 10 and slipped in the following five weeks, utilities and energy producers were the only winners among the industry sectors. Popular bets in health care, consumer staples and tech suffered the biggest losses.

“Being defensive is the best strategy for now,” said Li Lifeng, a strategist at Huaxi Securities. “The market may stage a short-term rebound, but I still do not see that it will be in for an upward trend again.”

While China’s economic power has boosted the allure of yuan-denominated shares among stock index compilers, that global recognition also comes with a price – in the form of greater exposure to market volatility caused by swings in sentiment and capital flows. Since the nation’s top banking official warned of financial-market bubbles on March 2, losses have snowballed amid a sell-off in the US Treasury market.

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