Chinese stocks trade closer to bear-market territory

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Chinese stocks trade closer to bear-market territory

A measure of Chinese shares traded in Hong Kong inched closer to bear-market territory as a robust economic recovery, raising geopolitical tensions and a weaker yuan keep investors away.

The Hang Seng China Enterprises Index sank to more than 19% from a peak in Jan. 27. Meituan was the biggest loser because of concerns that increased competition will dent the e-commerce firm's profitability.

The brutal achievement comes as China's post-Covid recovery loses momentum and earnings fall short of high expectations. Investors say the market lacks catalysts to a rebound as frictions with the US on issues from technology to Taiwan keep sentiment in check. The HSCEI gauge has erased almost half of the gains seen during a three-month reopening rally through January. It is down about 6% this year as the second-worst performer in Asia after Thailand's benchmark.

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Profits at industrial firms in China were falling in the first four months of the year, reflecting cooling demand and deepening factory-gate deflation in the world's second-largest economy. Industrial profits fell 20.6 percent in the January-April period from the same time frame in 2022, according to the National Bureau of Statistics.

China's domestic recovery just hasn t been as strong as expected and not enough to counter worries of a worldwide slowdown, said Marvin Chen, an analyst with Bloomberg Intelligence. Markets may be tired of catalysts such as monetary easing or thawing in US tensions, and are looking elsewhere for growth. China's CSI 300 Index fell as much as 0.8% on Monday after it erased all its gains for 2023 last week, despite a weaker yuan and developers' debt woes. The MSCI Asia Pacific Index of regional shares rose 0.5% following a deal between President Joe Biden and House Speaker Kevin McCarthy on the US debt ceiling.

As losses deepen, China's equities are losing their bullish strategist calls. Citigroup Inc.'s global trading team cut its overweight rating on China to neutral on Friday, while Jefferies Financial Group Inc. strategist Christopher Wood reduced his overweight position on the market for the second time in less than two weeks in Asia Pacific ex-Japan model portfolio.

Investors will only return in a meaningful way when worries about geopolitics and broader economic recovery are allayed, said Vey-Sern Ling, managing director of Union Bancaire Privee.

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