In recent weeks, Chinese shares, once among the best-performing in the world, have experienced a significant decline, causing investors to question their exposure to the country. Despite a promising economic recovery after the lifting of pandemic restrictions, stocks of Chinese companies globally have lost approximately $540 billion in value since April 18, according to calculations by CNN. The decline can be attributed to economic uncertainty within China, rising geopolitical tensions, and Beijing’s crackdown on international consulting firms.
Various indices reflect the downturn in Chinese equities. The Nasdaq Golden Dragon China Index has dropped more than 5% since April 18, while Hong Kong’s Hang Seng (HSI) Index has also experienced a 5% decrease. The Shanghai Composite Index and the Shenzhen Component Index have fallen by 3% and 6.5%, respectively. In contrast, the Nasdaq Composite has seen a 4% increase during the same period.
The negative sentiment extends beyond equities to the Chinese yuan, which serves as an indicator of investor sentiment. Over the past month, the yuan has depreciated over 2%. On Wednesday, the yuan breached the key level of 7 against the US dollar in offshore trading, marking the first time this year. The currency continued to weaken, reaching its lowest level in nearly six months on Friday.
The chief concerns for investors are twofold. Firstly, China’s economic recovery has not been as robust as anticipated, contributing to skepticism among investors. Brock Silvers, Chief Investment Officer for Hong Kong-based Kaiyuan Capital, points to this lack of a robust recovery as a key factor. Secondly, concerns surrounding China’s geopolitical landscape and policy risks, known as “fundamental investability,” have also contributed to investor skepticism.
Tensions between the United States and China have escalated in recent months, with Washington imposing sanctions on critical Chinese industries, particularly in the chipmaking sector. China, in turn, has demonstrated a growing wariness of foreign companies, leading to crackdowns on international consultancies and the expansion of the country’s counter-espionage law.
Michael Kelly, Global Head of Multi-Asset at PineBridge Investments, a New York-based asset management firm, highlights the rising global tensions between China and the US as a significant contributing factor to investor concerns. While China’s economy is experiencing growth, these underlying geopolitical and policy risks have cast a shadow over investor sentiment.
As investors weigh the economic landscape and navigate the evolving US-China relationship, the impact on China’s financial markets and the subsequent effects on global investments remain a topic of intense scrutiny.