HONG KONG, March 12 (Reuters) – Investors in Chinese stocks, already disillusioned by Beijing’s lower-than-expected economic growth target for the year, will be further disheartened by the shocking collapse of US lender SVB Financial Group, market participants said.
China’s CSI300 index (.CSI300) fell 4% last week while Hong Kong’s Hang Seng (.HSI) tumbled 6% as China’s moderate GDP growth target of around 5% for 2023 – set at its annual session of parliament – hopes of a major stimulus dashed.
Market sentiment could be further dampened after Friday’s sudden collapse of start-up-focused lender SVB (SIVB.O), which sparked heated debate in China over the fallout over the weekend.
“The SVB bankruptcy is a barometer of macro risk… reflecting how asset prices are impacted by central bank rate hikes,” said Yuan Yuwei, hedge fund manager at Water Wisdom Asset Management, who predicts tougher times for highly indebted and illiquid assets.
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While the event is unlikely to trigger another financial crisis, it could have a negative psychological impact on Chinese markets, he said.
SVB’s Chinese joint venture with Shanghai Pudong Development Bank (600000.SS) said on Saturday it has a solid corporate structure and independently managed balance sheet in an apparent effort to appease local customers.
But many Chinese tech startups, especially those with dollar funding, have opened US accounts with SVB. At least one WeChat group with several hundred members was formed by concerned Chinese customers of the SVB who want to safeguard their interests.
Lower risk appetite could dampen excitement over an expansion of the China-Hong Kong Stock Connect on Monday. More than 1,000 China-listed A-shares and nearly 200 Hong Kong-traded shares will be added to the cross-border investment program.
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Li Bei, fund manager at Shanghai-based hedge fund Banxia, said she has reduced her equity holdings and “will maintain relatively low exposure,” citing a lack of good opportunities.
Cautious economic stimulus for 2023 and a relatively tight credit environment mean that “it will be difficult for equities to rise further from current levels and the market will remain volatile,” Banxia wrote in a letter to investors last week.
China retained its central bank governor and finance minister in their posts on Sunday, towards the end of the week-long session of the National People’s Congress (NPC) where Xi Jinping began his third five-year term as Chinese president. Li Qiang, a close confidant to Xi, was promoted to prime minister to steer the economy, which grew only 3% last year.
Derek Lin, a portfolio manager at Boston-based Columbia Threadneedle Investment, said the government “needs a good year” but is in no rush to launch major stimulus, so “the market is trying to get excited, but there’s some hesitation.”
Stanley Tao, founder and CIO of Golden Nest Capital Management, said he does not expect a broad bull market in China this year as a slack real estate market will continue to be a drag on the economy. He is cautious about tech stocks that could be affected by frictions between the US and China.
Still, domestic A-shares are likely to outperform offshore Chinese stocks, which are more vulnerable to potential spillover effects from the collapse of the SVB, analysts say.
Chaoping Zhu, global market strategist at JPMorgan Asset Management, said the SVB fiasco is a reflection of tighter financing conditions for technology companies during the US rate hike cycle.
“The worry is that we may just be seeing the tip of the iceberg,” Zhu said on a live broadcast Saturday.
(This story has been re-archived to correct the dateline)
Additional reporting by Samuel Shen and Georgina Lee; Edited by Raju Gopalakrishnan
Our Standards: The Thomson Reuters Principles of Trust.
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