- Chinese shares are starting to look cheap
- Regulatory action could still be detrimental
Chinese markets experienced their worst ever performance against the broader MSCI Emerging Markets index in 2021. A combination of policy interventions aimed at the curbing the power of the country’s internet billionaires and a sickly property market cast a major shadow over the performance of both the Hang Seng and the Shanghai composite. The Hang Seng alone fell by 18 per cent since beginning of the year, while broader emerging markets were down by 9 per cent. An almost exact inversion of the normal pattern of these movements.
The ripple effect affected players further afield such as Softbank (HK:9984), the company’s major focus on Chinese tech shares leading to days of sustained losses on the Tokyo stock exchange as investors questioned its business model, as well as causing a flight to safety with a clear rotation into US dollars. The sell-off also included Chinese shares listed on the US stock market as growing fears of a great-power rivalry put the merits – or otherwise – of all Chinese assets into a new perspective.