Goldman says Chinese fund managers lack confidence, fear policy tightening amid slide in onshore stocks

Onshore money managers are worried about risks to growth from the drag of the property sector and the future path of income recovery
‘Concerns on near-term policy tightening came up in almost all of our conversations with local clients,’ Goldman says

China stock market

Yulu AoandJiaxing Li

Published: 10:03am, 27 Apr 2023

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Chinese stocks have taken a US$443 billion beating this month, troubling global funds that are looking to put their money in recession-proof markets. Low confidence among onshore investors and worries about policy tightening and a banking crackdown may have played a part.

Money managers are surprisingly low on confidence in the nation’s economic outlook despite a strong recovery last quarter, Goldman Sachs said in a survey of its clients in Beijing over the past week. Policy tightening and new regulations to clean up the banking industry appear to have rattled them, it added.

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“Investors remain quite concerned about risks to growth from the drag of the property sector [and the] future path of income recovery,” economists including Maggie Wei and Hui Shan wrote on April 26. “Concerns on near-term policy tightening came up in almost all of our conversations with local clients, in contrast to our previous marketing [trip] in February.”

Goldman summed up its observations in conversations with asset managers in insurance companies, mutual fund managers and private equity funds, following a rosy first-quarter economic report from the statistics bureau last week. Since then, investment banks including JPMorgan, UBS and Nomura have raised their 2023 growth forecasts for China.

The poor sentiment undermines hopes for a market turnaround among foreign investors, who have ploughed US$28 billion of fresh money into yuan-denominated stocks this year through the Stock Connect scheme. The onshore equity market has lost US$791 billion of value since the market peaked this year on February 2, according to Bloomberg data, including US$443 billion alone in April.

A rebound in the Hang Seng Index on Wednesday may also be fleeting, after a three-day sell-off to a four-week low. Bank of America said 22 per cent of fund managers were inclined to sell into market rallies, while two-thirds would buy market dips, based on its survey of 30 clients in Hong Kong this week.

Despite pockets of recovery, China’s property market continues to cloud the outlook, showing the long-lasting damage from Beijing’s “three red lines” policy in August 2020 that stoked an unprecedented credit squeeze and offshore debt defaults among the nation’s biggest developers.

“Local investors lowered their expectations on property policy and held mixed views on whether property policy would be eased further in the near-term,” Goldman said. Worries abound amid speculation China will introduce or expand a property tax programme after it completed a nationwide property registration this week.