- Chinese share performance diverges for first year in a decade
- Mainland equities stabilize after $5 trillion summer rout
For Chinese stocks, 2015 was a year of turbulence and divergence.
The Shanghai Composite Index gained 9.4 percent in its second annual advance, after government intervention to end a $5 trillion summer rout helped stabilize the world’s second-largest equity market. A gauge of Chinese shares traded in Hong Kong tumbled 19 percent, the most in Asia, as foreign investors turned bearish on the nation’s earnings prospects amid a deepening economic slowdown.
The decoupling, the first for any year in a decade, underscores the widening price gap between the stocks traded in the two cities even after the start of an exchange link made it easier for investors to buy shares across the border. Dual-listed stocks are 40 percent more expensive on the mainland than in Hong Kong, according to the Hang Seng China AH Premium Index.
“China’s stock markets went through a turbulent ride this year, with its incredible rally in the first half of 2015 coming to a dramatic end in the second half,” said Bernard Aw, a strategist at IG Asia Pte. in Singapore. “The government remains committed to restructuring the economy to achieve sustainable and stable growth. From that perspective, we should see some volatility in equity markets, but the magnitude may be smaller than in 2015.”
The Shanghai Composite dropped 0.9 percent to 3,539.18 at the close, while the Hang Seng China Enterprises Index was little changed at 9,661.03. The Hang Seng Index rose 0.2 percent, paring its annual decline to 7.2 percent. China’s markets are closed on Friday and will reopen on Jan. 4.
In Shanghai, a sense of normality is returning after the biggest-ever destruction of China’s stock-market value. A gauge of 50-day price swings has fallen to the lowest level in seven months, while the Shanghai Composite capped the best performance among major global indexes this quarter. Regulators have removed some support measures implemented at the height of the market turmoil, while a ban on selling by major shareholders is due to expire next week.
Still, other curbs remain. Trading in the country’s CSI 300 Index futures has fallen 99 percent from this year’s highs after policy makers raised margin requirements, tightened position limits and targeted short sellers. Top executives have also fallen victim to a widening probe into the finance industry.
The intervention and volatility of mainland equities were a turn-off for foreign investors, while a weakening yuan hurt the earnings outlook for H shares, which are priced in Hong Kong dollars. The offshore yuan, which is freely traded overseas, touched a five-year low on Wednesday and the spot rate in Shanghai tumbled 4.5 percent this year to 6.4935 a dollar, the biggest annual decline in more than two decades.
Plunging valuations also proved to be no incentive for investors to return to Chinese stocks in Hong Kong. The Hang Seng gauge trades at 7.2 times reported earnings, the same level as shares in Beirut, and the biggest discount to the MSCI All-Country World Index since 2003, according to data compiled by Bloomberg.
Global money managers also cut their holdings of mainland shares by about 5 percent in the first nine months of 2015, even after authorities made it easier than ever to bring money into the country.
“Investors will likely repeat the same trading pattern as this year,” said William Wong, head of sales trading at Shenwan Hongyuan Group Co. in Hong Kong.
While valuations of Chinese shares across the border have fallen from their highs, they aren’t cheap. The median stock on mainland exchanges trades at 74 times earnings, the most expensive among the world’s 10 biggest markets. The Shanghai Composite, which has a heavy weighting in low-priced banks, has a ratio of 19. That compares with its five-year average of 13.
Technology stocks led gains this year in mainland markets on bets China will succeed in transitioning to a consumer-led economy from one dependent on investment. Wangsu Science & Technology Co. and Iflytek Co. more than doubled this year. A gauge of health-care companies was the second-best performer among the 10 industry groups on the CSI 300 Index, led by drugmaker Beijing Tongrentang Co.
In Hong Kong, PetroChina Co. plunged 41 percent this year and China Petroleum & Chemical Corp. fell 25 percent as crude prices headed for a second annual decline amid a global glut. China National Building Material Co. was the worst performer, sinking 51 percent, while BYD Co., the maker of batteries for new-energy vehicles, advanced the most with a 41 percent rally.
Data tomorrow will probably show the nation’s manufacturing sector contracted for a fifth straight month in December, according to the median forecast of analysts in a Bloomberg survey. Gross domestic product growth will slow from an estimated 6.9 percent this year to 6.5 percent next year, according to a separate survey.