Investing in China Now Down to One Ultimate Question

Is the country going to be OK?

Photo by Silas Baisch on Unsplash

Chinese equities had another brutal week or month in April. Excluding the last-hour rally on April 29, the CSI 300 Index (A-shares) would be down 7.1% MTD, the Hang Seng Index (H-shares) was down 7.8% this month, and the top 25 Chinese ADRs would be down an average 6.7% in April. Single stocks have declined more than the market index. If you trade Chinese stocks, you know very well how painful it has been recently.

The Hang Seng Tech Index went from down 0.8% to up 10% on April 29, the last trading day of the month. This dramatic intraday reversal was largely driven by: (1) unconfirmed reports that China may end the regulatory clampdown on Big Tech (2) China and the U.S. beginning to negotiate the logistics of allowing the audit inspections of Chinese ADRs (3) China’s Politburo meeting vowing to stabilize the economic growth with more policy support.

BTW, nothing from the latest Politburo meeting suggests the 5.5% GDP growth target is absolutely mandatory. This is perhaps where the foreign media got it wrong. “Adhering to the zero-covid policy” remains the top priority, according to this Chinese news article. For now the virus control still seems to precede the economic goals.