Bets on common prosperity agenda lead to losses

SINGAPORE: Investors who bought into the idea two years ago that China’s consumer and green energy stocks stand to win big from president Xi Jinping’s renewed economic agenda would have seen their holdings pummelled in 2023.

Car dealership China Meidong Auto Holdings Ltd, sportswear manufacturer Li Ning Co and energy storage system maker Pylon Technologies Co have all tumbled by at least 68% in 2023, making them some of the worst-performing stocks on the MSCI Asia Pacific Index that has more than 1,500 members.

Shares such as these were perceived as havens amid the Chinese government’s regulatory crackdowns as they aligned with Xi’s policy priorities, including the “common prosperity” drive to narrow the wealth gap, as well as the development of the renewables sector.

They instead suffered disproportionate losses as China’s recovery from Covid lockdowns faltered and a deepening property crisis dented investor confidence.

“Investors should abandon narrow themes and instead look at the quality of each underlying business and its intrinsic value – this will be a more reliable predictor of future returns,” said Paras Anand, chief investment officer at Artemis Investment Management in London, which oversees the equivalent of about US$29bil.

“Simply aligning around ‘common prosperity’ as a theme has proven to have its own pitfalls.”

It wasn’t expected to end up like this. In late 2021, Goldman Sachs Group Inc identified 50 China stocks that it said stood to benefit from Xi’s “common prosperity” campaign, including Li Ning and LONGi Green Energy Technology Co.

They have instead been among the major underperformers this year as the faltering property market and job uncertainty sapped consumer spending.

At the same time, an oversupply of equipment and slumping prices for critical minerals and solar and wind energy have dragged down renewables shares.

Eight of the 10 biggest losers on the MSCI Asia Pacific gauge this year are from the Chinese consumer or renewables sectors, the other two being Chinese property firms.

On the positive side, smartphone maker Xiaomi Corp and suppliers to Huawei Technologies Co have rallied as investors have been attracted to their innovation.

Chinese semiconductor stocks have also performed well as the government pumped money into the industry following new restrictions imposed by the United States and Europe.

“Most investors that I talk to look at growth areas” such as equipment makers that are key to China’s high-tech transformation, said Herald van der Linde, head of Asia equity strategy at HSBC Holdings Plc in Hong Kong. “Common prosperity does not automatically translate into faster growth for listed firms.” — Bloomberg