Chinese Stocks Wipe Out 2023 Gains as Headwinds Intensify

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(Bloomberg) -- China’s benchmark stock index erased all its gains for the year as a weaker yuan and developers’ debt woes added to persistent worries over growth and geopolitics.

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The CSI 300 Index closed down 1.4% Wednesday, with the energy and financial sectors leading the decline. The benchmark is among the worst performers in Asia this year, compared to a more than 3% advance in the MSCI Asia Pacific Index and double-digit gains in key gauges for Japan, South Korea and Taiwan.

Chinese stocks have steadily fallen out of favor since a reopening rally fizzled at the end of January, belying bullish conviction calls from Wall Street analysts at the start of 2023. Weaker-than-expected economic data have prompted banks from JPMorgan Chase & Co. to Barclays Plc to slash their growth forecasts, while worries over worsening ties with Western countries have also hurt sentiment.

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Developers’ financial woes were again in focus on Wednesday, with a number of local government financing vehicles struggling to repay debt on time. A Bloomberg gauge of Chinese builders shed more than 2%, falling for the 11th session in its longest such streak since 2018.

“It looks like it’s going to be a grueling year,” said Dai Yuzhong, a fund manager at Shanghai Shinyu Private Fund Management Co. “The pessimism in the market is spreading, and negatives ranging from the yuan losing the 7 level to worries about LGFV payment are putting investors on the defense.”

Outflows from foreign investors continued. They offloaded 4.5 billion yuan ($635 million) after a $1.1 billion selloff via trading links with Hong Kong on Tuesday.

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Tensions between China and the US have heated up as Beijing banned purchases of Micron Technology Inc.’s products on national security grounds, which ignited accusations of over-reach from US officials.

Traders are also watching how China’s new Covid wave, which is forecast to peak at about 65 million infections a week toward the end of June, may affect the recovery.

Read: US Must Widen China Chip Curbs in Micron Riposte, Lawmaker Says

Investors this year have turned to more themed trades as the macro environment deteriorated. State-owned enterprises have witnessed eye-popping gains after regulators called for building a valuation system with Chinese characteristics, a term some interpreted as a signal to boost valuations. Artificial intelligence-related companies also saw frenzied trading earlier this year before enthusiasm cooled.

The Hang Seng China Enterprises Index of Chinese firms listed in Hong Kong slid 1.9% on Wednesday, while a gauge of technology stocks lost 2% to close at its lowest since late November.

--With assistance from April Ma.

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