Dissecting China and Hong Kong’s Sell-Down
16 March 2022
What happened?

Both A-shares and H-shares markets saw a massive sell-off in the past week, exacerbating the already weak market sentiment since the military invasion of Ukraine by Russia.

It is difficult to pin down a single reason that caused the weakness, but we see several factors in play, piling the pressure on China and Hong Kong’s equity prices:

  • Growing concerns on potential secondary sanctions being imposed on China due to its relationship with Russia.
  • Risk of US-listed Chinese ADRs being forcefully delisted started to sink-in post the naming of five Chinese companies that are not Holding Foreign Companies Accountable Act (HFCAA) compliant.
  • Norway’s sovereign wealth fund, Norges’ explicit view and disposal of Li Ning shares due to ESG concerns reignited social issues like Xinjiang forced labour that could lead to further sell-downs among foreign shareholders.
  • COVID-19 new confirmed cases soaring in key Chinese regions, including Guangdong and Shenzhen, leading to large-scare lockdowns that could further deteriorate the already weak economy.
  • The general view among investors is that China is at risk of missing its GDP growth target for the first time, given few concrete supportive measures being introduced despite the ambitious target of 5.5% GDP growth in 2022. Key weakness lies with the property sector

Market Outlook

We expect markets to remain volatile in the near-term, amidst ongoing fund outflows and domestic economic challenges. We are hopeful to see increasing supportive and easing measures from the Chinese government in the 2Q’22. 

We believe markets are trading at very low valuation levels currently. Short term rebounds could happen time to time. 

A sustainable rebound would require both:-

  • Convincing investors that government has the measures to support growth in the economy; and
  • Resumption of fund inflows to markets. 

Portfolio Positioning 

Affin Hwang AM’s unit trust funds have generally underweighted in Chinese stocks since the start of 2022.

That said, the funds are not entirely spared from this recent sell-down. The funds are mainly positioned in companies that are China domestic-focused, reliant on local consumption, and benefiting from favourable policies that are in-line with the nation’s agenda. 

The funds do have positions in Chinese Internet names, with a collective weight of less than 10% in respective portfolios.

This article has been prepared by AHAM Asset Management Berhad (“AHAM Capital”) (formerly known as Affin Hwang Asset Management Berhad) specific for its use, a specific target audience, and for discussion purposes only. All information contained within this presentation belongs to AHAM Capital and may not be copied, distributed or otherwise disseminated in whole or in part without written consent of AHAM Capital.

The information contained in this presentation may include, but is not limited to opinions, analysis, forecasts, projections and expectations (collectively referred to as “Opinions”). Such information has been obtained from various sources including those in the public domain, are merely expressions of belief. Although this presentation has been prepared on the basis of information and/or Opinions that are believed to be correct at the time the presentation was prepared, AHAM Capital makes no expressed or implied warranty as to the accuracy and completeness of any such information and/or Opinions.

As with any forms of financial products, the financial product mentioned herein (if any) carries with it various risks. Although attempts have been made to disclose all possible risks involved, the financial product may still be subject to inherent risk that may arise beyond our reasonable contemplation. The financial product may be wholly unsuited for you, if you are adverse to the risk arising out of and/or in connection with the financial product.

AHAM Capital is not acting as an advisor or agent to any person to whom this presentation is directed. Such persons must make their own independent assessments of the contents of this presentation, should not treat such content as advice relating to legal, accounting, taxation or investment matters and should consult their own advisers.

AHAM Capital and its affiliates may act as a principal and agent in any transaction contemplated by this presentation, or any other transaction connected with any such transaction, and may as a result earn brokerage, commission or other income. Nothing in this presentation is intended to be, or should be construed as an offer to buy or sell, or invitation to subscribe for, any securities.

Neither AHAM Capital nor any of its directors, employees or representatives are to have any liability (including liability to any person by reason of negligence or negligent misstatement) from any statement, opinion, information or matter (expressed or implied) arising out of, contained in or derived from or any omission from this presentation, except liability under statute that cannot be excluded.
Hello, I'm Nadia. How may I help you?
Talk to Nadia
Not sure what to ask? Try these.
  1. I forgot my i-Access password.
  2. How to perform redemption?
  3. What is the minimum amount to open an investment account?
  4. Checklist for deceased redemption.
  5. What is the best fund for me?
<  Slide to cancel
I'm listening ...
Click to stop recording
Generic Popup