Chinese fund managers lack confidence and worry about policy tightening as onshore stocks decline

Chinese stocks have lost US$443 billion this month, alarming international firms looking to invest in recession-proof markets. Concerns about policy tightening and a banking crackdown, together with low trust among onshore investors, may have contributed.

Goldman Sachs reported in a survey of its clients conducted in Beijing over the last week that despite a good comeback in the last quarter, money managers have unexpectedly low confidence in the country's economic prospects. They appear to have been alarmed, it continued, by the tightening of policy and new measures aimed at cleaning up the banking sector.

"Investors remain quite concerned about risks to growth from the drag of the property sector [and the] future path of income recovery," according to economists Maggie Wei and Hui Shan. "Concerns on near-term policy tightening came up in almost all of our conversations with local clients, in contrast to our previous marketing [trip] in February."

Following a positive first-quarter economic report from the statistics bureau last week, Goldman summarized its findings in meetings with asset managers in insurance firms, mutual fund managers, and private equity funds. Since then, other investment banks have increased their projections for China's growth through 2023, including JPMorgan, UBS, and Nomura.

Foreign investors, who have invested US$28 billion in new funds into yuan-denominated stocks this year under the Stock Connect plan, are losing hope for a market comeback as a result of the negative attitude. According to Bloomberg data, the onshore equities market has lost US$791 billion in value since the market peaked on February 2 of this year, including US$443 billion just in April.

After a three-day sell-off that sent the Hang Seng Index to a four-week low, a recovery on Wednesday may possibly just be temporary. Based on a survey of 30 clients in Hong Kong this week, Bank of America reported that 22% of fund managers were inclined to sell into market rallies while 2/3 would buy market drops.

Despite some signs of improvement, China's real estate industry continues to cast a shadow over the future, demonstrating the lasting effects of Beijing's "three red lines" policy, which was implemented in August 2020 and caused an unprecedented credit crunch and offshore debt defaults among the country's largest developers.

"Local investors lowered their expectations on property policy and held mixed views on whether property policy would be eased further in the near-term," according to Goldman. After completing a nationwide property registration last week, there is widespread concern that China may implement or broaden a property tax program.

By fLEXI tEAM