Amidst escalating geopolitical tensions, economic challenges, and an unresolved housing crisis, Chinese stocks are facing a significant sell-off, causing growing concerns among investors. Morgan Stanley strategists issued a warning on Friday, advising against the purchase of Chinese stocks, reflecting the sustained foreign investor sell-off in the market.
Between August and October, an unprecedented $22.1 billion has flowed out of the A-share market through Stock Connect, marking the largest outflow in its history.
Despite the Chinese President Xi Jinping’s efforts to stabilize the property market and combat deflation, the results have been less than stellar. Foreign investors are now bracing for a third consecutive month of stock sales in Shanghai and Shenzhen. The Shanghai Composite Index has dipped below a key threshold, raising concerns that 2023 may become the first net sell year since the establishment of trading links in 2016 if foreign investors divest another $9.6 billion in shares.
Given these developments, Morgan Stanley has underscored the need for sustained recovery measures. This follows earlier optimism emanating from a July Politburo meeting, which hinted at the potential requirement for comprehensive strategies to rebuild investor confidence.
Several upcoming events hold the potential to sway the Chinese market’s trajectory. These include the eagerly anticipated APEC Summit, where a potential meeting between US President Joe Biden and President Xi Jinping may occur. Additionally, the Third Plenum and the introduction of new market policy measures could prove pivotal in reestablishing investor confidence and potentially reversing the current downward trend in Chinese stocks.
