China’s economy is struggling as Hong Kong-listed Chinese stocks dropped to 14% in September and ranked the worst performer among any major global equity benchmark for the month.
Chinese stocks are now traded at 0.6 times book value, the cheapest ever on the Hang Seng China Enterprises Index.
Out of 50 firms in the index, only three stocks did not fall, and 47 remaining stocks dropped, with real estate developers and tech firms down at the bottom.
The ongoing property crisis played a significant part in the poor performance. Most of China’s biggest real estate developers are listed in Hong Kong, and China’s largest developer, Country Garden, lost 72 % this year.
Tech firms like Alibaba lost nearly half their share, while Tencent is down 42% for the year. Video streaming firm Bilibili plunged about two-thirds.
Experts said Beijing’s Zero-COVID policy is to blame for the poor performance. They said that until China loosens the COVID policy and reopens, it is hard to see what factors boost investors’ confidence.
Kevin Li, fund manager at GF Asset Management, told Bloomberg, “For China, it is still more about whether Covid restrictions will ease up after the 20th party congress and whether the economy will see a recovery.”
Latest Manufacturing Purchasing Manager’s Index (PMI) showed that China’s factory activity shrunk in September. Manufacturers posted a massive drop in sales and new orders as lockdowns are still in place across the country.
In addition, China’s currency, the yuan, sinking to a record low since 1994 against the dollar, has added further troubles to its battered economy. The yuan kept sliding during the week despite China’s central bank’s effort.
This week, the People’s Bank of China has stepped up to slow the yuan depreciation by imposing a reserve requirement to prevent betting against its currency in the derivatives market.
It also issued a warning against speculators, saying, “Do not bet on one-way appreciation or depreciation of the yuan, as losses will definitely be incurred in the long term.”
China’s central bank also injected $122 billion for short-term liquidity ninefold to avoid a cash squeeze.