Can’t stop the rot in Chinese stocks

A recent article on SCMP revealed that pessimism in Chinese stocks has been the highest amongst foreign investors. 

The recent fund managers survey by Bank of America Global Research found that fund managers are now more net short on Chinese equities compared to the previous three months, and also are more bullish on the Japanese market. 

BofA Global Research FMS survey

Indeed the Chinese CSI 300 index, which comprises of 300 top companies listed on Shanghai & Shenzhen Exchanges is now down 4.5% in 2024. Over the past 6 months, it is down 14.3%, and past one year down 20.7%

Stocks like Alibaba, perhaps a hot favourite among investors here have suffered greatly. Year-to-date Baba is down 12.2%, after paring back some losses on Friday afternoon due to monthly options expiration. Over the past one year, it is down 41.6%, especially considering it now trades below its 2014 IPO price. On a valuation perspective, it trades at 10 times forward earnings on a GAAP basis, while it trades at just 1.3 times forward sales. Ultimately, nobody knows when the rot will stop as foreign investors are highly pessimistic on Chinese equities and have been looking at exit strategies, in a bid to recover some capital to redeploy into better opportunities elsewhere.

On a personal note, I am also starting to lose patience as I see much better opportunities in the US market, especially in small caps like the Russell 2000 index. The S&P 500 on Friday closed at an all time high of 4,839.81 points, after hitting an intraday high of 4,842.07 points. The Nasdaq 100 (not to be confused with the Nasdaq Composite) also made new all time highs, together with the Dow Jone Index.

Of course it doesn't mean that Alibaba would go down forever, as it is so oversold it doesn't make sense to sell at the bottom. My timeframe to exit would probably be around the next 3 to 6 months, depending on how Q4 earnings goes for Alibaba and their peers.

@TigerStars 

@CaptainTiger 

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