Can Onshore Stocks Offer Shelter from China’s Market Storm?

Chinese stocks have tumbled amid a regulatory crackdown on education and technology companies. Despite mounting concerns about government intervention, we believe investors should stay invested in Chinese stocks, particularly in the onshore A-share market, where regulatory risks are relatively less acute.

Investors have been stunned by the speed and scale of the Chinese sell-off. The Hang Seng Index, which includes Hong Kong companies and offshore H-shares of Chinese mainland companies listed in Hong Kong, fell by 8.4% over two days through July 27 in US dollar terms, its biggest drop since the global financial crisis in 2008. Chinese technology stocks were harder hit, with the Hang Seng Technology Index down 14.2% in three trading sessions. Over the last month, the CSI 300 Index of A-shares has held up much better (Display).

After leading world markets out of the COVID-19 crash in 2020, Chinese equities now face a new wave of negativity. For many investors, the unpredictability of Chinese government actions makes it seem almost impossible to set an appropriate risk premium for buying company shares.