Amid US-China Conflict... US Investors Sold 134 Trillion Won of Chinese Stocks in One Month (Comprehensive)

As tensions between the U.S. and China escalate over semiconductor dominance and the Taiwan Strait issue, the stock value of Chinese companies listed on the U.S. stock market has evaporated by more than $100 billion (approximately 134 trillion KRW) this month alone. Analysts suggest that the impact of geopolitical conflicts is having a greater effect on corporate stock prices than individual company positives such as China's reopening (resumption of economic activities).

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According to major foreign media including Bloomberg on the 26th (local time), the 'Nasdaq Golden Dragon China Index,' which tracks the stock prices of major Chinese companies listed on the U.S. stock market, has fallen for six consecutive trading days recently. From April 1st this year to now (the 25th), it has dropped more than 10%. This index recorded its lowest level since last October, with stock value disappearing by more than $100 billion this month alone.

The contraction of institutional investors' sentiment is directly reflected in the stock price decline. Swiss asset management firm UBP downgraded its investment opinion on Chinese stocks from 'overweight' to 'neutral' this week. Ontario Teachers' Pension Plan in Canada also recently announced it would gradually reduce its Asia equity investment team based in Hong Kong. Gilbert Wong, a strategist at investment bank Morgan Stanley, pointed out, "Long-only fund managers who only adopt buying strategies have massively sold Chinese stocks this month," adding, "As a result, the gap between their held assets and the benchmark (Nasdaq Golden Dragon China Index) has widened."

They cite geopolitical risk as the biggest risk in investing in Chinese companies. From the Taiwan issue to sanctions on China's video-sharing platform TikTok and the semiconductor supply chain restructuring, they judged that the negative impact from worsening U.S.-China relations would adversely affect stock prices. They believe that the relationship between the two countries will have a greater influence on stock price direction than the reopening benefits individual Chinese companies might gain as the Chinese government lifts its strict quarantine policies.

Jae Yoon, Chief Investment Officer (CIO) at New York Life Investment Management, said, "It is uncertain what statements the U.S. government will make about China in the next one to two years," adding, "This means not to invest here or there." As he mentioned, the Biden administration is expected to announce additional restrictions on U.S. private companies' investments in China's advanced technology sector as early as the end of this month.

Chinese companies listed on the Hong Kong stock market are also unable to avoid stock price declines. According to Bloomberg, the 'Hang Seng China Enterprises Index,' composed of mainland Chinese stocks listed on the Hong Kong Stock Exchange, was one of the five worst-performing among 92 Bloomberg-tracked benchmarks over the past three months.

Funds withdrawn from China are heading to India. HSBC Global Research analyzed that investors are reducing their allocation to Chinese stocks while increasing their allocation to India. Bloomberg reported, "Although China's consumption rebound is driving a faster-than-expected economic recovery, some investors have abandoned a positive view on Chinese stocks," adding, "Investors are reducing their exposure to Chinese stocks amid escalating U.S.-China tensions."

On the other hand, some see an optimistic view that the rise in mainland Chinese stocks could spread a positive atmosphere to the U.S. and other markets. Sunil Kulkarni, a strategist at Goldman Sachs, predicted, "Chinese stocks can regain momentum powered by very strong earnings growth." Yan Kaiwen, an analyst at China Fortune Securities, emphasized, "The market is showing signs of short-term stabilization in an oversold zone," adding, "From a long-term perspective, the economy will rebound more strongly in the second quarter, making yuan-denominated assets more attractive."

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