(June 18): A major Chinese stock gauge is on the cusp of a bear market, underscoring deepening concerns about the country’s growth outlook and the underperformance of its heavily weighted internet and consumer firms.
The MSCI China Index dropped as much as 2.1% on Thursday, and at one stage was down more than 20% from its Oct 2 high before trimming losses. Alibaba Group Holding Ltd and Tencent Holdings Ltd were the biggest drags on the day. The Hang Seng China Enterprises Index slid 2.1%.
The grim milestone looms as a sell-off in internet and e-commerce stocks deepens. China’s retail spending contracted in May for the first time since the pandemic, data showed this week. The downturn highlights the structural weakness of a benchmark lacking the kind of tech hardware giants that have boosted markets such as South Korea and Taiwan.
“The Chinese tech stocks are victims of the success of their North Asian neighbours,” said Vey-Sern Ling, the managing director of Union Bancaire Privee in Singapore. “The opportunity cost of sitting on Chinese tech stocks is very high when the other regions are outperforming.”
The MSCI China gauge remains dominated by internet and consumer companies listed in Hong Kong, with Tencent having a weighting of 13% and Alibaba constituting 10%. The index has missed out on the global rally fuelled by the artificial intelligence (AI) investment boom, which has pushed markets such as Taiwan and South Korea to records thanks to the strength of their world-leading chipmakers.
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The woes are also reflected in the poor performance of Hang Seng China Enterprises Index, which is the second-worst performer year to date among more than 90 indexes tracked by Bloomberg globally. The Hang Seng Tech Index tumbled into a bear market earlier this year.
The internet sector that once drove enthusiasm for offshore Chinese equities is losing momentum. Companies including Alibaba and Tencent reported revenue for the March quarter that fell short of estimates amid big investments in AI, fierce domestic competition and weak consumer sentiment.
In contrast, the tech-focused indices listed onshore are surging. The Star 50 Index, which has chipmakers as its members, rallied on Thursday to a record.
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“MSCI China is much more sensitive to consumption, regulation, bank/property confidence and platform earnings than to a clean AI hardware cycle,” said Charu Chanana, the chief investment strategist of Saxo Markets in Singapore.
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