Growth Dragons Weekly: Late 2023 Sees Foreign Funds Flowing Back to China, Signaling a Promising 2024 for Stocks as Giants Tencent and Alibaba Refocus on Core Operations
Here’s what happened in Growth Dragons this week:
Foreign Funds' Return in Late 2023 Heralds Bright Prospects for China's 2024 Stock Market
China Isn’t Against Gaming
Tencent Sheds Non-Core Businesses
New Year, New Alibaba, Better Taobao?
#1 Foreign Funds' Return in Late 2023 Heralds Bright Prospects for China's 2024 Stock Market
Covid altered the trajectory of Chinese stocks, leading to a continuous sell-off for three consecutive years. The predominant theme for China this year has been the "real estate credit crisis." The previous years' lockdown significantly dampened both the willingness and ability of the Chinese to spend. When the lockdown was lifted, revenge spending was not impressive. Moreover, the momentum was not sustained, as the deteriorating real estate market diminished the wealth effect on the Chinese, directly impacting consumer sentiments.
Consequently, the CSI 300 Index and Hang Seng Index have both experienced a downtrend, with declines of approximately 12% and 15%, respectively.
Large Chinese caps, including Tencent (-7%) and Alibaba (-15%), have also faced significant downward pressure. Even such dominant companies are trading under negative sentiment, making it unsurprising for other companies to experience further sell-offs. However, major China banks rose despite the pessimism in the property market. Largely due to the government’s policy reform for state-owned enterprises that was announced in May 2023.
There were super-performing China stocks like Pinduoduo, which have seen a remarkable 73% returns in 2023. Pinduoduo's success is primarily attributed to its ability to penetrate international markets through its Temu subsidiary, shaping a positive perception among foreign audiences and countering negative sentiments from foreign reporters on Chinese companies. This phenomenon highlights the reason for the struggle of many mainland companies to beat the market, despite exceeding earnings estimates or demonstrating growth.
Looking ahead to 2024, we hope that the theme for Chinese companies will be "Confidence," presenting an opportunity for them to showcase their potential to international consumers and regain foreign funds.
Several factors will influence this trend:
The Federal Reserve lowering interest rates, narrowing the US-China interest rate differential.
New US and Taiwan presidential elects refraining from imposing tariffs on China.
China's ongoing support for the real estate market to boost domestic optimism and enhance foreign investors' risk appetite.
The Federal Reserve has hinted multiple times for rate cuts, the earlier will be much more favorable for the Chinese. While geopolitical tension is not new for China, additional protectionism measures will hinder the globalization process of Chinese companies. Additionally, though China has expressed support for developers, companies like Country Garden and Evergrande may need more explicit government backing. Furthermore, Chinese banks have already reduced deposit rates to stimulate consumer spending and spur sales.
Some analyst forecasts for China are as follows. Goldman Sachs predicts a 16% rise in the CSI 300 index in 2024, while Morgan Stanley anticipates returns of less than half that, signaling growth but not an impressive one
In the final week of trading for the year, Chinese stocks experienced a US$228 billion rally as foreign buyers returned, marking the highest inflow since July 2023. However, this influx of foreign funds into China must be sustained; otherwise, the Chinese stock market may not be able to rise independently.