Shanghai’s prolonged Covid-19 health lockdowns have become a predominant investment risk, forcing money managers to cut holdings or become defensive in equities.
Global fund managers such as Pictet and Principal, and China-focused managers such as MegaTrust and Water Wisdom, point to the worrying number of weeks of strict measures in many major cities that have affected people and businesses.
China’s stock markets are the second-worst performer overall this year after sanctions-hit Russia, with the main stock index down 17% so far in 2022. The economy slowed sharply in March, with consumption, real estate and exports being hit.
While some manufacturers this week began preparing to reopen factories in Shanghai, they may have challenges operating in a city that remains largely isolated.
Alan Wang, who manages $6 billion of equity at Principal Global, said the fight against the pandemic is taking a toll on corporate profits. The fund reduced holdings in internet companies that rely on retail demand, and increased in more defensive sectors such as utilities, new energy, infrastructure, materials and state-owned companies.
Dong Chen, head of Asia macroeconomic research at Pictet, said investors have so far feared mainly about China’s regulatory crackdowns since 2020. Now, they are worried about the impact on consumer and business confidence and the economy.
The conflict in Ukraine also hurt Chinese stocks, spurring $6.3 billion in outflows in March on fears Beijing could face Western sanctions over ties to Moscow.
Analysts at Nomura said last week that 45 cities in China – which account for 40% of the country’s gross domestic product – were under full or partial lockdowns, with the economy at increasing risk of recession.
To cushion the slump, China on Friday announced a cut in banks’ required reserves and pledged to support the hardest-hit sectors, boost fiscal spending and boost investment in infrastructure.
Fidelity’s global head of asset management Andrew McCaffery said the effort to contain the pandemic remains the biggest question marks in China, “with outbreaks and the effects of large-scale lockdowns such as in Shenzhen and Shanghai expected to drag production and making China’s target of growth of around 5.5% this year a challenge”.
Source: CNN Brasil
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