For American investors, Chinese stocks are becoming an asset they should not own.
Influential investors like George Soros have cut their exposure to China and Cathie Wood’s ARKK ETF no longer owns such stocks. Many others suffered losses, according to their 13F filings. Betting against the country’s equities was one of the busiest trades among managers surveyed by Bank of America Corp. In London, Marshall Wace, one of the world’s largest hedge funds, says that Chinese ADRs now cannot be invested .
This is a big change from early 2021, when global investors injected more money into the country’s domestic stocks than at any other time in history and the MSCI China Index rose to a 27-year high. Now, global fund managers are dealing with trillion-dollar losses as China’s government targets industries that threaten its goal of “common prosperity.” Selling continued this week even as the MSCI China Index is trading at its lowest level since 2005 against the S&P 500.
Regulatory pressure in both China and the United States is intensifying. Securities and Exchange Commission Chairman Gary Gensler on Monday warned of the risks of investing in Chinese companies and asked SEC staff to “pause for now” to approve IPOs of shell companies that Chinese companies they usually quote. The Nasdaq Golden Dragon China Index, which tracks 98 of China’s largest U.S.-listed firms, fell for the sixth day in a row on Tuesday after Beijing issued a new set of rules aimed at preventing online competition. unfair.
Paul Marshall, co-founder of the $ 59 billion investment firm Marshall Wace, said China’s crackdown on its technology and education sectors has repelled investors, even as authorities have tried to limit the damage. The country’s listings are now more likely to be largely confined to the mainland, the billionaire predicted in a letter to clients last week.
The MSCI China Index has fallen nearly 30% from its peak in February, dragged down by declines in the education sector exceeding 90% for companies such as Tal Education Group and Gaotu Techedu Tencent Holdings, the largest publicly traded company. from China, it’s about a year. under. By contrast, the S&P 500 is up 13% in the period, while the MSCI All-Country World Index has gained 6.9%. And while Wall Street strategists continue to downgrade their recommendations on China, analysts have not been so optimistic about the S&P 500 companies in two decades.
Betting against Chinese stocks is becoming more and more popular. According to the latest Bank of America survey of fund managers, about 11% of investors surveyed viewed “China short stocks” as the busiest trades, behind only “US long tech stocks.” ” And the “long ESGs”. It got more votes than the “Long US Treasuries.” About 16% of those surveyed said “China politics” is the biggest risk now, up from almost zero in July. It ranged right behind inflation, a tantrum, Covid-19, and an asset bubble.
The fall in Chinese stocks means that the country’s companies are disappearing from the ranking of the world’s largest by market capitalization. Tencent is the only Chinese company still in the top 10 publicly traded companies, at No. 10, and is close to being overtaken by Visa Inc.
Some investors are seeing value. Aberdeen Standard Investments bought the downturn in Tencent and kept most of its other high-tech holdings in China largely unchanged during the recent sell-off, according to Hugh Young, chairman of its Asian unit.
“I don’t think anything strategic has changed” in China and the regulations will benefit responsible players, Young said.
Staying the course is proving to be a difficult test as losses mount. While a gauge of mainly Chinese tech stocks in Hong Kong rose 0.9% on Wednesday morning, that came after a 9% drop in five days. The index is down 25% this year.
© 2021 Bloomberg