It was a dire January for Chinese stocks. After falling almost 10 per cent, Hong Kong’s Hang Seng stock index now trades around the same levels it did in 1997, when Tencent and Alibaba, two of its largest constituents, had not yet been founded and the territory had just returned to Chinese sovereignty.
At a recent conference in the city, more than 40 per cent of participants declared Chinese equities to be “uninvestable”. Strategists complain that fund managers have stopped listening, while frustrated mainland investors have taken to grumbling on the US embassy’s social media accounts, where they have some hope of evading censorship.
A generation of missing returns, market exhaustion and the magic word “uninvestable” — it sounds like an opportunity. A value trade requires enough gloom to drive market prices below intrinsic value and China’s market is not lacking for pessimism. The question is whether this is a value trade or a value trap. For it to be the former, two things need to happen.