HSBC, Union Bancaire side with China stock signals on downside while Dalio tells sceptics not to be scared after US$1.2 trillion sell-off

Wealth managers at HSBC, Union Bancaire Privee see short-term downside risks to China markets after the biggest rout since January 2016

Bridgewater’s Dalio tells China sceptics not over-focus on the wiggles of crackdown and ‘do not let that scare you away’

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Even after a 7.9 per cent loss in July, the CSI 300 Index is trading at least 40 per cent above the sell-off levels in 2015 and 2018. Photo: EPA-EFE

Published: 7:30am, 2 Aug 2021Updated: 7:47am, 2 Aug 2021

Chinese stocks in the mainland and Hong Kong markets cratered last week, wiping out US$1.2 trillion in market value along the way in July, as regulatory clampdowns struck fears into free-market believers.

The slump, the biggest shakeout in more than five years, handed investors a reminder about a market built on “Confucian hardware and Soviet software” as described by hedge fund giant Bridgewater Associates. Its founder Ray Dalio, a China optimist, told sceptics not to be scared by the latest regulatory lashing and to focus on the nation‘s decades-long market-friendly reforms.

Wealth managers at HSBC and Union Bancaire Privee, watching the size and speed of the market rout, are instead listening to the market history by predicting more downside to stocks until some semblance of policy clarity is restored.

“The regulatory changes entail further downside pressures in the short-term, as investors reprice these uncertainties,” said Carlos Casanova, senior economist at UBP, a Swiss private bank with US$178 billion in assets under management. The housing sector and other dominant “new economy” operators could be the next targets, he said in a report last week.

Onshore stocks suffered a US$434 billion beating in July while those in Hong Kong slumped US$752 billion, according to Bloomberg data. That is the most since a US$2.4 billion plunge on a combined basis in January 2016, despite reassurances from officials and state-run media.

Even after a 7.9 per cent loss in July, China’s biggest stocks in Shanghai and Shenzhen represented in the CSI 300 Index are trading at least 40 per cent above their levels in the sell-offs in 2015 and 2018, according to Bloomberg data.

They are also the most expensive in a month vs members of the MSCI World Index at 17 times earnings. The valuation reached a low of 12.1 times after the US$5 trillion market meltdown in 2015, and 11.3 times in the bear market in 2018 sparked by the US-China trade war.