On the Monday, the Hong Kong Hang Seng Index dropped 10% (the second largest one day drop), with reportedly 80% of the selling from EU/US investors. Simultaneously, US-listed Chinese tech groups in the Nasdaq Golden Dragons Index also plummeted 14%. Yet in almost parallel, China 3Q22 GDP came in 20% above consensus at 3.9% year-on-year.
Most agree that China is in a bear market. But would also concede that Xi Jinping's last 10 years have been successful. Over this period, China's growth in real income, retail sales and share of global economic growth have been 2x to 3x greater than the U.S..
However, many investors now point to the latest consolidation of Xi Jinping's power as dangerous. And that his focus will be on increasing domestic control and national security.
But there is also a cohort of Asset Managers closer to the markets (i.e. based locally) that see things differently to the asset managers allocating to Chinese Equities remotely (i.e. from other continents).
Whilst acknowledging the danger of diminished checks and balances surrounding Xi Jinping's power, they also see a politician at work. One that needs to remove political obstacles that have hindered the pace of common prosperity. And a new Politburo that is not just a team of followers, but of individuals that share his common vision. And who have the political skills to ensure the vision is fulfilled. Faster than has been previously possible.
And whilst some managers interpret the words "Chinese National Security" as a pseudonym for future heightened geo-political tensions with the U.S. over a range of running issues. There are others that argue the Western Politicians and CEO's are doing the same. Investing in clean energy, semi-conductors, electric vehicles, batteries and clean energy, as well Artificial Intelligence, Software and the Internet.
Are Chinese stock markets cheap? If there are signs that the Chinese Zero-Covid-Policy is relaxed and vaccination levels increase, markets may rebound fast, regardless of level of paranoia or realism investors attach to Xi Jinping's vision, across the globe.
