China Shares Plunge to Lowest Valuation on Record in Hong Kong

(Bloomberg) — Grim milestones keep piling up for Chinese stocks listed in Hong Kong.

As September draws to an end, the Hang Seng China Enterprises Index has lost more than 14% to rank as the worst performer among major equity benchmarks globally this month. Hovering around the lowest since the global financial crisis, it is now trading at 0.6 times book value, the cheapest ever.

All but three stocks are down the year on the 50-member gauge, with property developers and tech companies at the bottom. China’s largest builder Country Garden Holdings Co. has lost almost three quarters of its value and video streaming firm Bilibili Inc. is down about two thirds.

While the swoon is part of a global rout as central banks around the world step up rate hikes to tame inflation, Chinese stocks have been hit particularly hard as the Covid-Zero policy took a toll on the nation’s economy and as Sino-American tensions worsened over Taiwan and Russia.

Also, unlike the mainland, Hong Kong’s open capital market means foreign investors can pull their money out anytime they want, making it prone to bigger swings amid macro headwinds.

READ: Things Keep Getting Worse for Hong Kong’s Embattled Stock Market

Some investors are pinning their hopes on China’s twice-a-decade Communist Party Congress in mid-October, an event that has typically boosted the stock market in the past. The nation has already been ramping up its support of the housing market ahead of the event, although analysts say it’s not enough to turn around the embattled industry.

“For China, it is still more about whether Covid restrictions will ease up after the 20th party congress and whether the economy will see a recovery,” said Kevin Li, fund manager at GF Asset Management.

China’s factory activity continued to struggle in September as the economic recovery was challenged by lockdowns. Demand from overseas for Chinese goods is also moderating: a gauge of new export orders in the official PMI fell to 47, the lowest in four months.

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As the mainland goes on a weeklong Golden Week holiday, Hong Kong-listed stocks will lose a big group of buyers who have been loading up shares in the financial hub on all but three days this month.

Until China relaxes its Covid-Zero policy and reopens, “it is difficult to see what other factor could meaningfully give a boost to investor sentiment, especially in Asia,” said Christina Woon, investment director for Asia equities at abrdn plc.

READ: China Traders See Property Boost, Covid Zero Resolve at Congress

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