It’s bad in China.
The Hong Kong Hang Seng is down 7% already this year in nearly non-stop selling, including a 2.2% decline today as the December lows gave way.
Hang Seng daily
It’s a similar story with mainland indexes and US-listed China ETFs. KWEB is down 10% YTD.
And that’s all on the heels of a rough year in 2023.
The message is easy to understand: Western money is done with China.
“I saw no to China,” Jim Cramer said on Friday.
Even his reverse-jinx couldn’t help as his sentiment appears to capture the solidifying opinion of US money managers. If a fight with Taiwan is inevitable, why bother getting involved?
Valuations in China are clearly cheap but that doesn’t seem to matter, in part because China doesn’t seem to be that interested in boosting the economy. The PBOC had another chance this week, with economists expecting a 0.10% cut to the MLF lending rate. Instead, the PBOC stood path.
They will get another chance with the LPR rates this Monday and there is talk of an RRR cut but moves to shore up growth in 2023 were soft and measured rather than the powerful stimulus western investors want. And it might not only be western investors as the China-listed Japan ETF is now trading with a 20% premium to NAV. It’s one of the few ways that Chinese investors can put money to work abroad and it shows a similar level of trepidation.
The good news is that the kind of puke ongoing in China sentiment is oftentimes the sign of a bottom. Still, we could have another month of this before it ends.
The problem is that adjacent markets are being sucked down into the China vortex. Australia and AUD have long been proxies for China commodity demand but that’s turning from an advantage to a liability.
AUD/USD today is down 82 pips to 0.6578, a one-month low. It also looks like a clear rejection of the June/July double top at 0.6900.
AUDUSD daily chart
I maintain hope that the Australian dollar can rally and China can be a global growth driver but at this point, it’s a ‘show me’ story.