Worst quarter of the year in Chinese stocks

The CSI 300 index, which includes the largest companies listed in Shanghai and Shenzhen, lost nearly 15% in the three months to March 31, while the 500-stock Shenzhen Component Index dropped 18%. For both the benchmarks, this was the biggest quarterly decline in percentage terms since the third quarter of 2015.

The Shanghai Composite Index, which consists of more large and less volatile state-owned companies, fell nearly 11%, its worst performance since the fourth quarter of 2018.

Deutsche Bank’s Jason Liu said companies listed in mainland China are more concentrated in sectors driven by the domestic economy, in contrast to Chinese stocks listed in the US and Hong Kong. These include businesses operating in sectors such as banking, consumer goods and industry, said Mr. Liu, Asia head of the main investment office at Deutsche’s international private bank.

Chinese growth and consumer confidence have been hurt by the country’s battle with the Omicron version of Covid-19, which has led to widespread lockdowns and factory closures.

“A lot of it has a very direct impact on industrial production, consumer spending and all these home-driven sectors, and I think people can feel that,” Mr. Liu said.

Meanwhile, the war in Ukraine has lifted global commodity prices, in turn eating into the profit margins of consumer-goods companies such as winemakers and bottled water producers.

China’s economically important property market is still ailing, despite recent efforts by Beijing to ease real estate developers’ access to funding.

While many Chinese developers are listed in Hong Kong rather than onshore, Zhikai Chen, head of Asian equities at BNP Paribas Asset Management, said the sector’s difficulties had a major secondary effect on the broader economy.

“There is still a big question mark that now that we are here, what is the government going to do? Now we’re at a point where investors are basically saying, show us the money,” Mr. Chen said.

Onshore shares outperformed some offshore counterparts such as Hong Kong’s Hang Seng China Enterprises Index, which fell 8.6% in the first quarter.

A pledge in mid-March by policymakers led by Vice Premier Liu He to adopt a more market-friendly approach helped prevent a punitive sell-off in offshore stocks. Indices such as the Nasdaq Golden Dragon China Index of US-listed Chinese stocks rebounded, but the recovery was less pronounced in onshore stocks.

While Mr. Liu’s intervention offered reassurance, neither significant policies have been followed, nor has Beijing provided a sufficiently strong stimulus package, said Louis Lau, director of investment at Brands Investment Partners in San Diego. “I think it was a little disappointing after Liu He spoke,” he said.

Foreign investors sold a net 45.1 billion yuan, or the equivalent of $7.1 billion, of mainland Chinese shares through Stock Connect trading links in March. Wind data shows it was the third biggest drop since the program began in 2014. Some investors and analysts said concerns about the geopolitical risk of investing in China have risen following Russia’s financial isolation.

This story has been published without modification to the text from a wire agency feed