Chinese retail investors are showing a renewed risk appetite, but the broader interest in domestic stocks remains weak, with the CSI 300 index rising only 2% year to date. In contrast, Hong Kong’s Hang Seng Index has surged over 20%, fueled by significant investments from mainland traders amidst growing concerns about the mainland economy and currency risks.
Recently, there has been a noticeable increase in risk appetite among Chinese retail investors, reflecting growing confidence in the economy. However, this resurgence should raise concerns for Beijing as the broader demand for Chinese stocks remains weak. The benchmark CSI 300 index, which tracks leading Shanghai and Shenzhen stocks, saw only a modest increase of less than 2% year to date. Although there was a brief rally spurred by government commitments to enhance consumption, the momentum has since diminished following the release of further details.
Conversely, Hong Kong’s stock market has experienced significant gains, with the Hang Seng Index rising over 20% this year, marking it as the best-performing major index globally. This performance is largely attributed to mainland traders, who have made substantial net purchases totaling HK$386 billion ($49.7 billion) through Hong Kong’s Stock Connect program, marking a remarkable 190% increase in the first full quarter of 2024.
A considerable portion of the investment inflow has been directed towards major technology firms such as Alibaba and Tencent. This surge came after the unveiling of a cost-effective large language model by AI start-up DeepSeek, which has rekindled hopes surrounding China’s technological advancements compared to Western counterparts. However, the reality is that Western technology giants are yet to realize substantial benefits from AI, thus calling into question the sustainability of this rally among retail investors, who typically favor rapid returns.
Moreover, the rally in Hong Kong appears to be motivated by a strategic reduction of exposure to risks associated with the mainland currency. With rising tariffs on Chinese exports, U.S. President Donald Trump has indicated further increases, potentially leading to an economic downturn for China. The stability of the yuan, held at approximately 7.2 per dollar, is threatened by these protective measures, fuelling fears of devaluation to protect the economy. This context suggests that the surge in Hong Kong stocks may reflect skepticism about China’s economic outlook rather than a solid endorsement thereof.
In conclusion, while the rising interest of Chinese retail investors in domestic stocks denotes a rekindled risk appetite, the overall sentiment remains concerning due to a lack of widespread enthusiasm for Chinese equities. The stark contrast between the modest performance of the CSI 300 index and the substantial gains in Hong Kong’s market indicates a strategic shift among investors, primarily driven by a desire to mitigate risks associated with the mainland economy. Thus, the recent rally is more an act of caution than confidence in China’s future.
Original Source: www.tradingview.com
