The China trade started showing signs of fading Tuesday after the country’s economic planning body stopped short of announcing any new major stimulus plans. Zheng Shanjie, chairman of China’s National Development and Reform Commission, shared several actions Tuesday aimed at bolstering the world’s second-largest economy. But he did not announce any major new plans for ensuring economic health, leaving investors feeling underwhelmed. In reaction, the iShares China Large-Cap ETF (FXI) slid more than 9% in early Tuesday trading, while the KraneShares CSI China Internet ETF (KWEB) tumbled more than 10%, on pace for their worst day since 2022. The iShares MSCI China ETF (MCHI) sank nearly 11%, on track for its worst day ever. U.S.-listed shares of Chinese companies also slumped. Online video company Bilibili tumbled more than 13%, while automaker Nio and Temu parent PDD each fell more than 9%. E-commerce platform Alibaba fell about 7%. Billionaire investor Ray Dalio may have also helped sink China shares Tuesday. The founder of Bridgewater Associates, one of the world’s largest hedge funds, said at the Greenwich Economic Forum in Greenwich, Connecticut, that it’s still tricky to invest in China as Beijing may be seeking to structurally move the country away from capitalism. FXI KWEB,MCHI 1D mountain The FXI, KWEB and MCHI ETFs on Tuesday Tuesday’s declines mark a reversal for a trade that has proven enormously profitable the past two weeks. The iShares China Large-Cap ETF, for example, soared 33% between Sept. 23 and Oct. 7. After China’s central bank announced economic support measures in late September, investors and hedge funds poured into mainland markets. Renaissance Macro Chairman Jeff deGraaf said last week that opportunities to invest in China come along only every five or 10 years. Appaloosa Management founder David Tepper, meanwhile, said his investment plan after the U.S. Federal Reserve began cutting rates in September was to buy “everything” connected to China. Beyond funds, he cited casino stocks Wynn Resorts and Las Vegas Sands — with large operations in Macau — as individual stocks that are leveraged to China. Both retreated in Tuesday’s session. Now, market participants are wondering what’s next for China’s markets and the U.S.-listed investment vehicles that focus on them. Morgan Stanley strategist Laura Wang on Tuesday revised price targets for the major Chinese stock market indexes, suggesting no room for further gains compared with current levels. “Despite the recent rejuvenated investor sentiment, we think the current market valuation level has already priced in a lot of expectation for reflationary measures and asset allocation and we do not expect much more rerating opportunity at [the] broad index level,” Wang told clients, referring to higher price-to-earnings valuations. “Today’s press conference at least in the near term reinforces such belief, in our view, and the stock market could see more divergence at individual stock level.” Still, many said they didn’t see Tuesday’s National Development and Reform Commission press conference as particularly shocking. Merrill Lynch economist Helen Qiao called any expectation for big stimulus announcements “unwarranted,” given that the NDRC focuses more on implementation than creating strategy. What upset investors, according to Citigroup’s China chief economist Xiangrong Yu, was a lack of clarity on how the country would address its fiscal gap. “There was no discussion on budget revision, no mention of any ‘new’ trillion-yuan numbers, no real money guidance on consumption support,” Yu wrote to clients. “The equity market reactions clearly displayed investor disappointment.”
Investors slam the brakes on the hottest trade going in the market
Oct 8, 2024
