China coronavirus: Greater China stock benchmarks converge as correlations rise to multi-month highs
- The 120-day correlation between the Shanghai Composite Index and the Hang Seng Index has risen to its highest since September, while it is at a 12-month high for the Shanghai Composite and Taiwan’s Taiex index
- The convergence indicates that investors in Hong Kong and Taiwan will probably need to look more to the yuan-denominated market for clues on Beijing’s willingness to revive economic growth and the fallout of the unprecedented Shanghai lockdown
Covid-19 outbreaks in mainland China that led to the lockdown in Shanghai have seen stock markets in the Greater China region converging by the most in at least eight months, indicating that the onshore market holds increasing sway over those in Hong Kong and Taiwan.
The 120-day correlation between the Shanghai Composite Index and the Hang Seng Index has risen to its highest since September, according to Bloomberg data, while the relationship between the Shanghai Composite and Taiwan’s Taiex index touched a level not seen since last May.
The convergence indicates that investors in Hong Kong and Taiwan will probably need to look more to the yuan-denominated market for clues on Beijing’s willingness to revive economic growth and the fallout of the unprecedented Shanghai lockdown that has already upended production and shipments of the self-ruled island’s biggest listed companies from chip maker Taiwan Semiconductor Manufacturing Corp (TSMC) to Apple supplier Hon Hai Precision Industry, better known as Foxconn.
“All the negative factors such as macro slowdown, lockdowns and geopolitical risks are not yet fading, disrupting investors’ sentiment and confidence,” said Bruce Pang, a strategist at China Renaissance Holdings in Hong Kong. “The market needs to wait much longer than before to see a broader and sustainable recovery.”
03:02
Shanghai residents under Covid lockdown protest against lack of food
China’s central bank has so far avoided flooding the economy with liquidity to guard against possible asset bubbles, while the Politburo, the Communist Party’s highest decision-making body head by President Xi Jinping, on Thursday rebuffed any challenge to the nation’s zero-Covid approach, saying that the policy should be unwaveringly enforced.
The Shanghai Composite has fallen 17 per cent this year, the worst performer in Asia this year, while the Hang Seng gauge has dropped 15 per cent and the Taiex has lost 12 per cent. Losses in all three markets started to accelerate after Shanghai officially put its 25 million residents under lockdown on March 28. The ripple effect of the Shanghai can be felt in neighbouring cities, particularly Kunshan, where more than 5,000 Taiwan companies including a slew of Apple suppliers are located.