The sell-off episode stalled as investors weighed the political implications of the Chinese president’s unprecedented third term, Xi Jinping. Xi filled key positions in the nation’s top decision-making body with allies, sparking investor concern that China could stick to its Covid Zero strategy and hardline approach to tech companies as they are political. that have already taken a heavy toll on the economy.
The rally came after gains in Hong Kong-listed shares, with the Hang Seng Tech Index up 3%. Foreign investors became net buyers of Chinese stocks on Tuesday after a record sell-off in the previous session, when they sold $2.5 billion in mainland Chinese stocks. However, China’s offshore yuan posted a new record low.
Some investors back Chinese stocks even after short-term hopes for a quick economic reopening and large-scale fiscal relief faded. Marko Kolanovic, Chief Global Markets Strategist at JPMorgan Chase & Co.., said Monday’s sharp drop had no connection to fundamentals and presented a buying opportunity.
However, the limited magnitude of Tuesday’s rally shows that risk appetite towards Chinese stocks remained subdued due to a sluggish economy and rising geopolitical tensions. Charles-Henry Monchauchief investment officer at Banque Syz, said he is avoiding Chinese assets amid persistent consumer weakness and the country’s protracted real estate crisis.
“Western investors still consider it not good to invest in Chinese stocks,” he said in emailed comments.
Société Générale SA strategists, including Frank Benzimra, They noted that the case for Chinese actions has weakened and called for a higher risk premium after the Communist Party Congress confirmed its policy direction and placed greater emphasis on national security.
“We have been overweight China equities this year due to policy divergence and the expectation of economic stimulus. We were wrong,” the strategists said in a note, adding that Chinese stocks will struggle to outperform global peers until the Covid Zero policy is eased.
Source: Ambito
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