Chinese policy has destroyed its markets
HONG KONG (Reuters Breakingviews) – Accumulated political and diplomatic mistakes are destroying the valuations of listed Chinese companies. After spending the past few years taking investors for granted, Beijing will find it difficult to reassure them now.
While the war in Ukraine has derailed markets everywhere, the Chinese crash is particularly vicious and increasingly indiscriminate. National benchmarks are the worst performers in the world outside of Russia; The continent’s trade has shrunk by more than $2 trillion in market value since the start of the year, according to data from Refinitiv. The largest companies tracked by the CPI300 are down a fifth, while the Hang Seng China Enterprises index has retreated to 2008 levels. Domestic traders are even shunning government-backed safe-haven industries, such as defence.
In New York, former tech favorite Alibaba, which once traded above $300 per share, is falling toward its IPO price of $68, as are many peers. The Golden Dragon Index, which tracks Chinese companies listed in New York, is down about 40% year-to-date. Dark milestones loom on the horizon. At the end of February, for example, the MSCI China index recorded a meager annualized gross return of 1.5% since 1992.
It’s mostly self-inflicted. President Xi Jinping’s decision to get closer to Russian Vladimir Putin may have encouraged the latter to attack kyiv. The backlash could subject Chinese companies and banks to secondary sanctions, while soaring energy and food prices will reduce demand for Chinese goods and services at home and abroad. On top of that, authorities are deploying drastic methods to control the resurgence of the Covid-19 outbreak. It will also suppress domestic consumption, and most listed Chinese companies focus on local markets.
To diplomatic and viral headwinds, add political fantasy. The campaign to eradicate financial risk has degraded into rambling bureaucratic assaults. In 2021, for example, the government overnight converted the entire after-school tutoring industry from a popular occupation to a non-profit industry. The cybersecurity regulator has inserted itself into the registration process. Paranoid nationalist politicians have refused to heed reasonable concerns from US accounting authorities about fraud, making it likely that China Inc will soon be barred from New York.
Unlike the crash of 2015, the central government seems jaded by the massive sell-off. Indeed, the central bank left its benchmark interest rates unchanged on Tuesday. It could be denial or acceptance: after doing so much to destroy confidence in Chinese stocks, Beijing may have no choice but to let them hit rock bottom.
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– China’s benchmark CSI300 index which tracks large companies listed on the Shanghai and Shenzhen stock exchanges fell 4.6% to 3,983.81 on March 15, the lowest since June 2020. In Hong Kong, the Hang Seng China Enterprises index fell to levels not seen since 2008 .
– The Nasdaq Golden Dragon Index, which tracks Chinese companies listed in the United States, is down nearly 40% since the start of the year. The MSCI China index is down nearly 30% over the same period.
(Editing by Antony Currie and Katrina Hamlin)
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