The List of Concerns Over China’s Stocks Is Getting Longer. Here’s Why.

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A housing complex by Chinese property developer China Evergrande in Beijing. China continues to manage the fallout of Evergrande’s debt crisis.

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Noel Selis / AFP via Getty Images

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Alibaba Group Holding (ticker: BABA) reshuffled its management and the People’s Bank of China offered some policy incentives on Monday. But a variety of concerns remain about Chinese stocks, from both US and Chinese regulators pushing policymakers’ ability to navigate China Evergrande (3333: Hong Kong) debt problems.

iShares MSCI China Exchange-Traded Fund (MCHI) rose 1% to $63.87, off a bit of its loss from last week and a 22% year-over-year low. The Invesco Golden Dragon ETF (PGJ) rose 2.5% to $37.31, with US-listed Chinese shares still down more than double this year. baron’s For some time now, here and here have been warning about volatility in Chinese stocks, cautioning investors not to rush bargains—and patience may still be necessary.

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China cut the amount of reserves, a way of prompting banks to lower financing rates for struggling companies. Some economists see this as a sign as troubling as Beijing Manages Evergrande’s results, “This is anything but routine, in the sense that central banks must respond to a sudden surge in financial risks,” Craig Botham, chief China+ economist at Pantheon Macroeconomics, said in a note to clients.

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The move, he said, “lies on” the central bank’s assurances that asset funding will be unaffected by Evergrande’s explosion. Default is increasingly a base case for Evergrande, which risks He said the cross-default on $19 billion of outstanding loans, and the withdrawal of massive financing as banks wait to see where the cracks lie.

In a separate note, Julian Evans-Pritchard, senior China economist at Capital Economics, described the move as a cushion for an economic slowdown that could have prevented a slowdown in economic growth. So far, he sees little appetite among central bankers for big stimulus that would help credit growth rebound strongly.

According to Evans-Pritchard, “As economic activity continues to weaken and the PBOC becomes more serious about reducing corporate financing costs, we think it will need to take further action, including cutting policy rates.”

For now, it’s just one of many risks that investors are monitoring closely. Also on the list: questions about how DiDi Global (DIDI) will delist from the New York Stock Exchange and how some of the nearly 248 companies listed in the US will perform, as the SEC is close to starting the clock on delisting companies. Doesn’t follow US auditing rules. Many fund managers have already moved to Hong Kong-listed stocks when possible, but there are several large Chinese companies – such as Pinduoduo (PDD) – that do not yet have a secondary listing, and many smaller companies that do not have one. Clear way to get one.

Confusion over how the delisting could be bad for some badly beaten Internet companies like Alibaba, which pulled back some of Friday’s losses after the company’s management shake-up was announced. In a research note to clients, Bernstein analyst Robin Zhu cautioned that while the regulatory picture of Beijing, which weighed heavily on stocks like Alibaba, was becoming clear, the risks to US-listed Chinese companies were “serious and real”. , thereby requiring investors to focus more. On stocks already listed in Hong Kong.

These developments play against a still difficult geopolitical backdrop with the Biden administration The weight of the diplomatic boycott of the Winter Olympics That could prompt some backlash in China. The rising tension between the two countries has left officers Fully navigating the changing sentiment around China and the desire to maintain it as an attractive market for growth. For example, Ray Dalio, founder of hedge fund Bridgewater Associates, had to clarify comments After facing backlash last week about his views on doing business in China, the latest example of the difficult puzzle facing US officials — and the challenges investors still need to factor in — is facing them.

While valuations on some of China’s most widely held stocks have fallen to attractive levels, some investors are still wary, with Bernstein’s Zhu noting that clients say they want a clear indication that “China macro policy is more is taking a positive turn, or is down in projections correction territory.” Others await more clarity on how DiDi delists to see what kind of blueprint it can offer other Chinese companies For retail investors, navigating these changes alone can be more difficult.

Write to Reshma Kapadia at [email protected]

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