Shanghai Composite, China A50 burn investors after $33B outflow

China burned investors again in 2023 as concerns about the second-biggest economy continued. The Shanghai Composite index underperformed its global peers like the S&P 500 and Nasdaq 100 index. 

It was trading at CNY 2,953 on Thursday, 12.95% below its highest point in 2023. In contrast, these key American indices jumped by more than 20% and are sitting at their highest level on record.

China A50 vs Shanghai Composite

The Shanghai index also underperformed its Asian counterparts like the Nifty 50 and Nikkei 225. Like in the US, Indian and Japanese stocks surged to their all-time highs in 2023 as demand from local and international investors rose.

In addition to the Shanghai Index, the China A50 and Hang Seng indices also plunged in 2023. As I wrote this week, Hong Kong’s Hang Seng index has now plunged in the past four years straight. 

Mainland indices returns were worse in dollar terms as the Chinese yuan retreated. The USD/CNY dropped by over 6% in 2023 as the US dollar rose. On a positive sign, the pair has now pulled back from its highest point during the year.

The Shanghai Composite and China A50 indices tumbled as foreign investors dumped their holdings. A new report by FT notes that over $33 billion of foreign capital that moved to China earlier this year has already left. 

Many foreign investors rushed back to China earlier this year as hopes of a swift recovery rose. While the economy boomed in the first few months of the year, it slowed down dramatically as the hype died.

The situation worsened when Country Garden, one of the biggest real estate companies in the country imploded. It joined other highly leveraged companies like Evergrande and Sunac that have been on life support.

Beijing is working to solve this crisis. It has launched a multibillion-dollar program to encourage the construction of stalled projects. It is also encouraging banks to lend more money to the embattled industry. These moves have led some analysts like Kyle Bass to warn about the country’s banking sector.