“Can you help me fight your friend so that I can concentrate on fighting you later?”
CGTN anchor Liu Xin on March 19, summarising President Joe Biden’s request of President Xi Jinping.
As pointed out in a previous edition of this column, “We are the World” (Issue 1026, March 14), Chinese equities were being sideswiped because of the country’s stance to support Russia’s “special military operation”. The markets in China and Hong Kong gave up the gains and failed to live up to their early January and February winnings. The sell-off that followed left these markets precariously on a precipice.
In the lead up to the invasion of Ukraine, China had made a show of forming a tight, rekindled friendship with Russia, based on “anything but America”. The US-led Western bloc, meanwhile, reacted forcefully to Ukraine’s invasion with a “3S” response to Russia: sanctions, Swift and social media.
When the US claimed that Russia had asked China for military assistance, there were fears that China might be hit by sanctions next. Adding to the cacophony were the perennial noise of the delisting of China’s American Depositary Receipts (ADRs) and various US-listed Chinese tech stocks. A particularly bloody weekend in Ukraine was followed by yet another negative story on Tencent Holdings facing another bout of regulatory wrath. The sell-off that followed in the next three market sessions, in this context, seemed almost cathartic.
Alibaba Group Holdings, for example, plunged to just US$76.76 ($104.34) from US$100. Meanwhile, the Hang Seng Tech Index fell 22% as did the Nasdaq Golden Dragon Index as panic took over in Asia and US time. On March 15, the Ides of March in the Roman calendar, JPMorgan downgraded around 30 Chinese internet stocks, citing how they have become companies “unattractive with no valuation support in the near term”.
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Closer to home in Singapore, robo-advisor StashAway informed customers on the evening of March 14 that it had reversed its big bet on KraneShares CSI China Internet Fund (KWEB) ETF. As recent as July 2021, it had increased its exposure to this fund. All in, StashAway reduced exposure to China stocks in its clients’ portfolios from 3%–20% all the way to 0%–0.4%.
With these big “all-in/all-out” calls, one could be a hero in the long run or get caught with pants down. One often-quoted quip is to buy when there is massive blood on the streets. Unfortunately, not every investor has the mental fortitude to put that into practice.
On March 16, after two years of focusing only on the pandemic and political stability, Liu He, one of China’s vice-premiers responsible for the economy announced that the government would “boost the economy in the first quarter” and introduce policies “favourable to the market”.
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The astute few might have fished the bottom on March 15 but most were resigned to joining the herd to chase the 22% rebound the following day. With an additional 10% gain on March 17, this was one of the more pronounced “Vs” in recent memory. While volatility has been good for some this last week, unless one is both nimble and has a strong stomach, it is probably best to watch from the sidelines.
New wine, old skins?
Indeed, China did appear to have been watching from the sidelines. After all, its political calendar was occupied with a series of high-profile events ranging from the Two Sessions, the Winter Olympics and the subsequent Paralympics — where Ukraine came in second in the medal tally — and more importantly, the 20th Plenum this October. With a low tolerance for headlines of either extremes, China was thought to have wanted a Goldilocks kind of backdrop that was neither too hot nor too cold.
Thus, China’s signalling on March 16 has set off the kind of reactions that could only have come from this sharp reversal of the dark pall in place since Oct 2020, when Ant Group’s IPO was canned, Jack Ma disappeared off public view for some time, and the tech sector seemingly suffering from death by a thousand cuts.
Liu’s remarks were rapidly followed by reports on China’s financial stability committee, which included a call to “quickly complete rectification of China’s big tech platforms, and stop test pilots of regional property taxes”, thereby lifting the cloud on China tech and real estate developers. One can imagine investors, holding a shot of maotai, toasting the beginning of the end of policy risk overhangs.
Others were more likely too busy keying in buy orders. On March 15, when JPMorgan downgraded the Chinese tech stocks, it probably reflected a growing pessimism by calling China “un-investible”. Following Liu’s comments the following day, the ensuing market rally emboldened banks like Credit Suisse and Citigroup to call a tactical overweight on Chinese equities on 17th, which led to a follow run through on 18th. Did anyone get lucky shelving their own versions of “China is un-investible” draft reports and were able to use the nadir on March 15 to reframe it positively?
On March 18, smoke signals from Beijing continued, with the drift towards the video call scheduled between Biden and Xi later that day. Murmurs emitted from the China Securities Regulatory Commission that the thorny issue of audits of Chinese companies in the US and rules involving offshore listings will be addressed soon and that China will support capital markets. Unfortunately, the call between the two presidents wasn’t as meaty as hoped for in these aspects.
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Meanwhile, that hasn’t stopped the market from celebrating the rebound, which has more or less held up so far (although still well below its 2022 highs). Right on cue, the Western narrative shifted to help interpret last week’s market gyrations: China is now seen as being more pragmatic, hence (so far) taking the high road on “all conflict is bad” and drawing a floor on its market.
The other rumour going around is that ADRs rebounded in the US because the US caved in to Chinese demands and that if all Chinese companies left the US markets, it would weaken the US dollar. Nonsensical this rumour might be, it still circulated like wildfire among the little red fan clubs. Some short-term sanity may have ultimately prevailed — for now.
Home sweet home
Amidst all the carnage north, the Hang Seng Index was not spared. It failed to hold on to the recovery following the Lunar New Year level of 24,000 points, plummeting to just 18,400 before recovering to 21,500 — still a 10% drop year to date. In contrast, our resolute Straits Times Index held up amid the regional, global sell-off. Year to date, the STI is up around 7%.
For the perennial naysayers about our home market, it is worth noting that the support for the STI came not just from the three local banks that are heavyweight index component counters. The reinvention of Corporate Singapore post-pandemic continues, with Keppel Corp up a quarter year to date; Sembcorp Industries up by a bigger 30%.
Other index constituents continued to gain strength as well. For the patient investors who didn’t rush to take profit, the revised terms of the Mapletree Commercial Trust’s takeover of Mapletree North Asia Commercial Trust helped lift both counters by 5 to 10% from the post-announcement pullbacks. The new Olam Group has risen above where the old Olam International traded as it moves closer to Olam Food Ingredients’ spin-off.
Perhaps in these uncertain times, it is not a bad thing to stick to familiar friends closer to home, than to navigate the heart-stopping geopolitics. After all, the local market is on the run against the trends of major indices globally. It may be a tad boring at times, but you are not likely to lose your pants in a panic.
Chew Sutat retired from Singapore Exchange after 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multi-asset exchange and he was awarded FOW’s lifetime achievement award in 2021
