CBN Friday Special丨Chinese stock markets in review: Bumpy 2022 and Year of Hope in 2023

China Business Now李莹亮 2023-01-20 20:14


Hello! Welcome to this edition of CBN Friday Special. I’m Stephanie Li.

China’s economy has had a bumpy ride throughout 2022. Almost three years into the Covid-19 pandemic, headwinds including the worst outbreaks and a prolonged property sector crisis continued to put a brake on growth.

China’s GDP has expanded 3% in 2022, well below the target set earlier in the year. Meanwhile, local governments’ fiscal woes have intensified as their land sales and tax revenues have slumped. 

China’s yuan has also weakened significantly against the U.S. dollar over the year, amid aggressive interest rate hikes by the U.S. Federal Reserve. Despite the depreciation, the Chinese currency is gaining more international traction in cross-border transactions with Russia, Southeast Asian nations and oil exporters including Saudi Arabia.  

More critically, with the optimizations of its Covid policy at the year-end, the country’s pivot to focus on economic growth is raising the prospect of a strong recovery in 2023.

China's stock market wrapped up one of the bumpiest years last year, with the benchmark Shanghai Composite Index finishing with a loss of 15% from 2021. 

The stock market is a barometer of the economy. Below are the highlights of China’s stock market performance and challenges in 2022, and what to look out for next year as it heads to the post-Covid era.

Chinese stocks experienced more ups and downs  

By the end of last year, Shanghai’s index was down roughly 15% from the start of 2022 while Shenzhen is 25% lower. The CSI 300 Index, a gauge of China’s largest locally traded stocks, is down about 21% this year. 

Like the technology-studded NASDAQ which tumbled 33% in 2022, China's ChiNext index racked up considerable loss too, dropping 29.37% last year. The index fared much worse than the Shanghai composite stock index because it is heavily made up of technology companies which led the broader market slump all across the world.  

In Hong Kong, the benchmark Hang Seng Index capped a 15% loss in 2022, a third straight year of setback with many houses betting on a better outcome in 2023. The Hang Seng Tech Index performed even worse with over 27% loss throughout the year.

The Hang Seng China Enterprises Index, which tracks Chinese firms listed in Hong Kong, just suffered a third straight year of declines, a record losing streak since its inception in 1994. The slump in 2022 was accompanied by spiking volatility that was the worst since the global financial crisis and ranked the highest among major benchmarks in the world. Combined losses from stocks traded on the mainland and in Hong Kong reached $3.9 trillion. 

However, investors are starting to rebuild confidence thanks to the government's move to optimize the anti-COVID responses. Chinese shares staged an epic rebound in November, when Beijing started relaxing Covid restrictions and increased efforts to defuse debt risks among property developers. 

Since November, Chinese companies listed in Hong Kong have rebounded more than 35%. Indexes for Chinese companies with American depository receipts, meanwhile, have jumped more than 50% over the six weeks after the Covid policy shift. Benchmark indexes for A shares listed in Shanghai and Shenzhen have seen more modest gains of 12.3% and 18.7%, respectively, from April lows.

“Smart money” speeds up influx after shrinking 80% in 2022

"Northbound capital" that overseas investors pump into A shares through the Stock Connect, is estimated to fall by almost 80%, or a decrease of 330 billion yuan, to reach 87 billion yuan by the end of last year. 

However, foreign funds are snapping up Chinese stocks at the fastest pace in at least five years in anticipation of a boost in the market from the country’s post-pandemic economic recovery.

They bought over 100 billion yuan of A-shares through the Stock Connect in the first three weeks of 2023, the largest new year net buying in history. 

JPMorgan estimated that the A-share market's average earnings per share will surge 14% this year, which will be on par with the level seen in August 2022.

As global investors turned optimistic about China’s economic rebound this year, Goldman Sachs said it is likely to report a net inflow of $30 billion this year, but still behind the $63 billion seen in 2021.

There is a growing consensus of foreign institutional investors on taking a bullish stance on Chinese stocks. In a Dec 8 report, Morgan Stanley experts said the Chinese stock market will likely stand out among those of the emerging economies and even overtake those of the rest of the world this year.

The positive forecast emerged less than a week after the New York-headquartered investment bank upgraded its China stocks outlook from equal-weight to overweight. The A-share market is at the beginning of a profit and valuation recovery that may last for many quarters to come, said Morgan Stanley analysts.

UBS Global Wealth Management has also lifted China to "most preferred" in its Asian strategy.

The MSCI China Index is expected to increase to 80 by the end of 2023 up from 70 last year, according to both Morgan Stanley and Goldman Sachs. 

IPO market shows strong resilient

While initial public offering activity was lackluster globally in 2022 due to geopolitical tensions and multiple market uncertainties hindering economic growth, the IPO market remained buoyant in the A-share market last year as the country's technology-focused boards have started to show more vitality.

Stock exchanges in Shanghai, Shenzhen, and Korea took up the first three positions in the global IPO ranking in 2022 based on funds raised by 31 December 2022, according to professional services provider EY. Hong Kong Stock Exchange is set for 4th place, as listing market seeing renewed momentum in the second half of the year.

Although the number of IPO cases in the Chinese mainland contracted 15% year-on-year to 416 in 2022, total financing increased 9% to 584.9 billion yuan, refreshing the record reached in 2021. HKEX welcomed 76 new listings raising HK$107.6 billion last year, down 21% and 68% year on year, respectively.

It should be noted that IPO proceeds made at the STAR Market on the Shanghai Stock Exchange — the board aiming to nurture "hard technology" companies, accounted for 40% of the whole-year IPO fundraising in the A-share market in 2022, according to EY's calculation. It is the first time for the STAR Market to overtake the A-share main board where large-caps are listed in terms of IPO financing.

On top of that, among the 10 largest IPOs recorded on the A-share market last year, measured by proceeds, seven are listed on the STAR Market.

Meanwhile, the number of IPO cases recorded on Shenzhen bourse's ChiNext — the board to boost integration between traditional industries and new technologies and novel business models — came in at 150 by the end of 2022, according to latest data from market tracker Wind Info, overtaking all the other boards in the A-share market.

The STAR Market in Shanghai is expected to see 120 to 140 new listings in 2023, with total fundraising estimated between 305 billion yuan and 340 billion yuan. The ChiNext is likely to accommodate 150 to 170 IPOs in 2023, with proceeds estimated to top 210 billion yuan, according to Deloitte.

Advanced manufacturing, which is expected to highlight China's economic growth in 2023, will see more IPOs successfully announced this year. Companies that use special and sophisticated technologies to produce novel and unique products, which are also in line with the country's strategic development path, will also drive IPO activity on the one-year-old Beijing Stock Exchange.

While the BSE saw 75 new companies achieve successful flotation in 2022, with the total financing coming in at 14.9 billion yuan, Deloitte estimates that up to 120 companies will announce their IPOs on the BSE in 2023, with the total proceeds reaching 24 billion yuan.

2023: “Year of Hopes”

As the calendar turns to the new year, Chinese people have bid good riddance to the past three years by amassing on cities' landmark squares greeting the first sun rays of 2023. The government's move to optimize the anti-COVID responses is bringing a brand-new horizon for the capital market, where investors are upbeat about a sizzling rebound on the path. 

China's capital markets will keep on feeling the impact of the world's other major markets, the Wall Street in particular. The US Federal Reserve's aggressive interest rate hikes remain a major concern for investors.

While the Fed's key lending rate stands at a range of 4.25-4.5% now, the US central bank has forecasted that rate could reach a range of 5-5.25% at the end of 2023. Meanwhile, China's central bank is expected to maintain its relatively loose monetary policy, possibly to continue reducing the benchmark LPR (loan prime rate) to spur domestic consumption and ease housing mortgages. 

Investors are increasingly buoyed by the emerging positive news as the latest Central Economic Work Conference sets the tone for all-out country-wide efforts to strive for a buoyant growth. In 2023, China's services sector, which makes up more than 60% of the GDP, is expected to stage a strong comeback. In addition, Chinese officials have again listed residential housing construction as one of the economy's "backbone industries," meaning more pro-real estate sector policies will be meted out.

The majority of the global investment banks predict China's growth rate at a range of 5%-6% for 2023, which is likely to support the Shanghai composite stock index to rally by 15%-30% from 2022, analysts predict. The second half of 2023 is expected to witness a cascade of growth tides, to be mirrored by waves of higher stock indexes. 

In 2023, with policies to boost domestic demands seeing better effect, buffered by the easing of Covid restrictions, stocks in consumption are widely expected to stage a strong rebound. 

Also, investors are betting on new energy stocks to gain more ground as China continues to commit to its carbon peak and neutrality goals during the push for a sustainable, green industrial upgrade. 

As China is undergoing a transition from old to new economic drivers, investors should also keep a close eye on technology growth enterprises, which are best represented by those listed on the STAR Market in Shanghai. New energy and high-end manufacturing industries may present the most opportunities for profitable investments. 

Okay, that’s a wrap for today’s episode, as well as for the Year of the Tiger. Wish you a very happy, healthy and prosperous new year. May the Year of the Rabbit bring you new possibilities, new horizons and new gains. 

































Executive Editor: Sonia YU

Editor: LI Yanxia

Host: Stephanie LI

Writer: Stephanie LI 

Sound Editor: Stephanie LI

Graphic Designer: ZHENG Wenjing, LIAO Yuanni

Produced by 21st Century Business Herald Dept. of Overseas News.

Presented by SFC

编委:  于晓娜






21世纪经济报道海外部 制作

南方财经全媒体集团  出品

(作者:李莹亮 编辑:李艳霞)