China stock investors, already disillusioned by Beijing’s lower-than-expected economic growth target for the year, will be further disheartened by the shock collapse of US lender Silicon Valley Bank, market participants said.
“The SVB failure is a barometer of macro risks… reflecting how asset prices are being impacted by central bank rate hikes,” said Yuan Yuwei, hedge fund manager at Water Wisdom Asset Management said.
SVB’s Chinese joint venture with Shanghai Pudong Development Bank said on Saturday it has a sound corporate structure and an independently operated balance sheet, in an apparent effort to pacify local clients.
But many Chinese tech start-ups, especially those with dollar funding, have opened US accounts at SVB.
At least one WeChat group with several hundred members has been formed by anxious Chinese clients of SVB seeking to safeguard their interest.
Lower risk appetite could mute any excitement from an expansion of the China-Hong Kong Stock Connect on Monday. More than 1,000 China-listed A-shares, and nearly 200 Hong Kong-traded stocks will be added to the cross-border investment scheme.
Gloomy market mood
China set a moderate GDP growth target of around 5% for 2023 during the annual session of the rubber-stamp parliament, the National People’s Congress (NPC), this week.
It dashed hopes for a big stimulus, triggering a 4% fall in China’s CSI300 Index and a 6% drop in Hong Kong’s Hang Seng.
The market mood could be damped further by SVB’s sudden collapse, which stirred heated discussion over the weekend in China about its fallout.
Although the event will unlikely trigger another financial crisis, it could have a negative psychological impact on China markets, Yuwei said. He also predicted tougher times for highly-leveraged firms with illiquid assets.
Analysts say domestic A-shares will likely outperform offshore China stocks, which are more vulnerable to potential spillover from the SVB collapse.
Chaoping Zhu, global market strategist at JPMorgan Asset Management, said the SVB fiasco reflects tighter financing conditions for tech firms during the US rate hike cycle.
“The concern is that we could be just seeing the tip of the iceberg,” Zhu said during a live broadcast on Saturday.
Volatility to continue
Li Bei, fund manager at Shanghai-based hedge fund house Banxia, said she has slashed stock holdings, and will “maintain a relatively low exposure”, citing a lack of good opportunities.
Prudent economic stimulus for 2023 and a relatively tight credit environment means “it’s hard for stocks to further go up from the current level and the market will remain volatile,” Banxia wrote in a letter to investors last week.
China kept its central bank governor and finance minister in their posts on Sunday, in a sign that Beijing is prioritising continuity amid looming economic challenges.
Derek Lin, a portfolio manager with Boston-based Columbia Threadneedle Investment, said the government “does need a good year” but isn’t rushing to launch big stimulus, so “the market is trying to get excited, but there is some hesitancy.”
Stanley Tao, founder and CIO at Golden Nest Capital Management said he doesn’t expect a broad-based bull market in China this year as a soft property market will remain a drag on the economy. He is cautious about tech stocks that could be impacted by US-China frictions.
- Reuters, with additional editing by Vishakha Saxena