Hong Kong Stocks at 36% Discount Show True Depth of China Gloom

The Hang Seng China Enterprises Index fell as much as 3.6% on Monday, edging closer to a level unseen since 2005 and making it one of Asia’s worst-performing key indexes. Chinese tech behemoths including Meituan and Tencent Holdings Ltd. were among the biggest drags.

The continued selloff in Chinese shares is in stark contrast to a more optimistic Wall Street, where the S&P 500 Index climbed to a record on Friday for the first time in two years. It also came after China’s commercial lenders kept their benchmark lending rates unchanged, a move that follows the central bank’s recent decision to maintain borrowing costs but may disappoint investors hoping for more aggressive stimulus.

The latest declines may be attributable to “a lack of catalysts in the near term and outflows to more attractive alternatives in the region,” said Marvin Chen, a Bloomberg Intelligence analyst. “Global markets have been surging on the chip sector, and this is an area where China and the rest of the world may run on separate tracks due to geopolitical tensions.”

The mood is similarly fragile in the mainland Chinese market, where the benchmark CSI 300 Index dropped as much as 2.3% Monday, the most since late 2022.

The slump once again coincided with a jump in turnover on a handful of exchange-traded funds tracking the key indexes, a sign that state-led buying may be behind the unusual spike. The onshore benchmark finished Monday 1.6% lower.

The deepening rout is adding pressure on a massive amount of so-called snowball derivatives, which are structured products that promise bond-like coupons as long as the underlying assets trade within a certain range. The CSI Smallcap 500 Index, a pricing reference for some of these products, slid as much as 3% Monday to within 1% of an earlier estimated threshold that may trigger widespread losses on the snowballs.

The gauge of Chinese stocks listed in Hong Kong has lost about 13% so far this year, while the S&P 500 has gained 1.5%. CSI 300 has shed 5.1%.

A confluence of factors have driven the swoon in Chinese stocks since 2024 began, ranging from a deepening housing slump to stubborn deflationary pressures, as well as Beijing’s reluctance to use aggressive monetary and fiscal measures to revive growth. Uncertainties about the trajectory of US interest rates, and concerns about tighter regulatory oversight have added to the pessimism.

The benefits of monetary easing by the People’s Bank of China have already been priced in and “punchier” policies are needed to revive stocks, Eva Lee, head of Greater China equities at UBS Global Wealth Management, said at a briefing Friday. 

Source: https://finance.yahoo.com/news/china-stock-selloff-worsens-hong-050429499.html