Shanghai Stock Exchange (SSE) Composite Index falls
The SSE Composite Index fell 5.4% to 2,835.86 from May 5 to May 12, 2016. This came on reports stated that an official from the Communist Party believed the economic growth in the world’s second-largest economy would be L-shaped rather than U-shaped or V-shaped. Further, weak foreign trade data raised concerns about economic recovery in China. Despite weak economic growth, the Chinese government has refrained from adding fresh stimulus to the Market.
In further developments, the IMF (International Monetary Fund) warned that China’s economic rebalancing efforts may create spillover effects on neighboring countries, particularly South Korea and Taiwan. This means demand for imports from those countries would drop. In fact, the IMF’s latest regional economic outlook report states that “for every 1% decline in Chinese economic growth, other Asian countries will see a 0.15% to 0.30% fall in the short term.”
The SSE Composite Index includes all listed stocks (A shares and B shares) on the Shanghai Stock Exchange and the Shenzhen Stock Exchange. A shares are shares denominated in domestic currency (i.e., yuan) and are available only to local investors. On the other hand, B shares are shares denominated in foreign currencies such as the US dollar on the Shanghai Stock Exchange and the Hong Kong dollar on the Shenzhen Stock Exchange and are available to foreign investors.
Returns of China-focused mutual funds
From May 5 to May 12, 2016, the Oberweis China Opportunities Fund (OBCHX) fell by 5.6%. The Matthews China Fund Investor Class (MCHFX), the John Hancock Greater China Opportunities Fund Class A (JCOAX), and the Templeton China World Fund (TCWAX) fell by 3.3%, 2.3%, and 1.9%, respectively.
Meanwhile, the AllianzGI China Equity Fund Class A (ALQAX) fell by 1.2% for the same period. The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR) and the iShares MSCI China ETF (MCHI) fell by 4.5% and 2.0%, respectively.
The ADRs (American depository receipts) of NetEase (NTES) rose by 3.8%, while those of JD.com (JD), Baidu (BIDU), and 58.com (WUBA) fell by 11.0%, 8.0%, and 3.6%, respectively, from May 5 to May 12, 2016.
In the next article in this series, we’ll see what hedge fund managers think about China’s economy.