Ok, things are going south in Chinese equities again.
Small-caps and start-ups lead declines on Thursday and this is shaping up to be the worst week for mainland shares since 2016. Have a look at this:
Panning out, you can see that things are starting to particularly look dicey for the ChiNext and the Shenzhen:
There are all manner of possible contributing factors here including liquidity, selling ahead of the Lunar New Year, and lackluster earnings. Notably, the PBoC has skipped OMOs for six straight days.
One Wang Chen of XuFunds Investment Management Co. cited the inability of AMPs to roll their products thanks to Beijing’s efforts to crack down on the country’s labyrinthine shadow banking complex and the speculation it helps finance. “The only solution is to dump shares,” Wang told Bloomberg, adding that “a lot of the companies that slumped today had trust products or asset management products among their top holders.”
As Reuters notes, “the ChiNext looks set for its worst weekly loss in 21 months, with a profusion of once-acquisitive companies issuing profit warnings as they bite the bullet after overpaying for their purchases.”
“Investors are spooked,” Dai Ming, a Shanghai-based fund manager at Hengsheng Asset Management Co. said, in the same Bloomberg piece mentioned above. “Funds might be dumping their portfolio to cut risk and raise liquidity, regardless of the selling prices, just to get out.”
We got the Caixin Manifacturing PMI today and hilariously, it’s either a contributing factor to the selloff or a reason why it wasn’t worse, depending on who you talk to. It printed in line at 51.5.
Of course this will spill over into Hong Kong eventually and it looks like it already has, with the Hang Seng falling on Thursday and starting to look mortal after a truly incredible run to start the year.
“A sudden and quick pullback is normal for such a bull market in Hong Kong,” the same Wang Chen told SCMP, before noting that from where he’s sitting “the bull market hasn’t got too many fundamental problems yet. There’s no bubble in the big-weighted stocks, and valuations are still quite cheap.”
Whatever the case, it will be interesting to see how long China puts up with the slide in mainland shares before the national team gets the bat signal.
A cynical man may look at the rapid strengthening of the Yuan versus the Dollar in the last month and say that Chinese authorities permitted the Yuan strengthening as an attempt to diffuse the mounting US/China tensions surrounding tit-for-tat trade sanctions. They cynic would know that staunching capital outflows was an additional benefit, but he may not believe it to be the primary cause of the move.