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Bear Market Looms for China’s Equity Benchmark During Volatility

Pedestrians walk past a screen displaying the SSE Composite Index in Shanghai, China, on Thursday, Feb. 18, 2021. China's stock benchmark erased gains after briefly surpassing its 2007 closing peak, as mainland financial markets opened for the first time following the Lunar New Year break. Photographer: Qilai Shen/Bloomberg

China’s CSI 300 Index is on the cusp of a technical bear market, as global market swings add to investor concerns over the nation’s slowing economy and regulatory headwinds. 

The stock benchmark has dropped more than 19% from a Feb. 10 peak, coming within striking distance of a 20% drop. The gauge slumped the most since July on Tuesday following wild swings in the U.S. market as anxiety ran high ahead of Federal Reserve’s meeting, where officials are expected to signal a March rate hike.

Chinese stocks have started the new year with losses even as authorities doubled down on their pledge to support growth, cutting multiple interest rates. Much like 2021, tech and property sectors have been among the hardest hit in the recent selloff, with a shift away from last year’s winners adding to market swings.

CSI 300 Index at bear market levels for the first time since 2018

“Overall, a sense of caution prevails,” said Wai Ho Leong, a strategist at Modular Asset Management. This reflects “increased wariness given that we are entering a period of thinner liquidity over the Lunar new year. There is also a desire for more clarity over the policy response to perceived property default risks,” he said.

It is not appropriate for investors to overreact to the A-share selloff Tuesday as the stock market still enjoys solid support in terms of policy and capital, Shanghai Securities News said in a front-page report, citing experts.

Read more:
Bear Markets, Corrections Loom for Many Asian Stock Gauges
Even Mainland Traders Are Dumping China Mega Caps: Tech Watch
China’s Property Market Is Set for State-Dominated ‘Age of Rust
Fed Will Force Hong Kong to Raise Rates at Just the Wrong Time

The CSI slid 2.3% on Tuesday. The last time the gauge entered a bear market was in 2018, when investor concerns about China’s trade war with the U.S. took a toll on equities.

Turning Bullish

The CSI 300 is approaching the grim milestone just as bullish calls on Chinese equities are growing.

Deutsche Bank AG’s international private banking unit last week upgraded China A-shares and H-shares to overweight from neutral, betting that the diverging policy paths between the Federal Reserve and the People’s Bank of China will benefit the Asian nation’s economy and stocks.

Earlier this month, Jefferies Financial Group Inc. strategists turned bullish on Chinese stocks, saying they’re due for a rebound after getting hammered by a year of regulatory crackdowns and a slowing economy.

READ: China Goes From Asia’s Stock Nemesis to Hope as Fed Hikes Loom

Meanwhile, omicron outbreaks in China have also soured sentiment toward equities after the CSI 300 last year capped its worst annual performance since 2018.

Battered by Beijing’s clampdown on tech giants and debt troubles in the real estate sector, Hong Kong’s Hang Seng Index has already been in a bear market since August.


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