Chinese stocks have been a US$955 billion blunder in 2023 for market forecasters. Bears still have reasons to predict more pain

Chinese stocks listed in Hong Kong, Shanghai, Shenzhen and New York have lost US$955 billion in market value so far this year

Unresolved property market crisis, yuan depreciation pressure and geopolitics have battered confidence, forcing foreign funds to jettison Chinese stocks

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Published: 12:01pm, 18 Nov 2023Updated: 3:49pm, 18 Nov 2023

The slump in Chinese stocks this year has been catastrophic for some of the bullish money managers, given the size of the market and its upside promise. Bears haven’t run out of reasons to predict more pain in the coming months.

About US$955 billion of market capitalisation has evaporated from Chinese stocks listed in Hong Kong, Shanghai, Shenzhen and New York this year, according to Bloomberg data. China analysts at Wall Street investment banks have had to scale back their targets on economic growth, corporate earnings and the yuan.

Alibaba Group, Meituan, JD.com and Ping An Insurance, some of the market heavyweights, have retreated by 10 to 52 per cent in Hong Kong, while the 700-odd members of the MSCI China Index tumbled 9 per cent to rank among the worst global benchmark indices.

At the heart of the debacle is a misjudgment of the strength of China’s post-Covid economic recovery and the efficacy of Beijing’s policy reactions. China’s drip-feed fiscal and monetary policies underwhelmed, and debt implosions at China Evergrande and Country Garden sapped confidence. The yuan’s slide to a 16-year low hurt returns, and is likely to resume and crimp expected returns, analysts said.

It is nearly impossible to sell anyone China exposure this year, says Jason Hsu, founder and chairman of Rayliant Global Advisors in Los Angeles.

“It is nearly impossible to sell anyone China exposure this year,” Jason Hsu, founder and chairman of Rayliant Global Advisors, said by phone. The Los Angeles-based firm with about US$17 billion of assets under management. “The clients, who we run money for, are scared by the headlines.”

That fear could explain the record capital flight from China. Foreign investors have sold over 170 billion yuan (US$23.4 billion) worth of onshore stocks since end-July, according to Stock Connect data. Their ownership of Hong Kong-listed stocks fell to 37 per cent by September from roughly 44 per cent in early 2020, according to Daiwa Capital Markets.