SVB collapse may increase anxiety of Chinese equity investors

HONG KONG, March 12 (Reuters) – Stock investors in China, already disillusioned by Beijing’s lower-than-expected economic growth target for the year, will be further depressed by the shock collapse of U.S. lender SVB Financial Group, market participants said.

China̵[ads1]7;s CSI300 index (.CSI300) fell 4% last week, while Hong Kong’s Hang Seng (.HSI) fell 6%, as China’s moderate GDP growth target of around 5% for 2023 – set during the annual session of the stamp parliament . – dashed hopes of a major stimulus.

Market sentiment could be dampened further after Friday’s sudden collapse of start-up-focused lender SVB ( SIVB.O ), which sparked heated debate in China over the fallout over the weekend.

“The SVB failure is a barometer of macro risk … reflecting how asset prices are affected by central bank rate hikes,” said Yuan Yuwei, hedge fund manager at Water Wisdom Asset Management, who predicts tougher times for highly leveraged companies with illiquid assets.

While the incident is unlikely to trigger another financial crisis, it could have a negative psychological impact on China’s markets, he said.

SVB’s Chinese joint venture with Shanghai Pudong Development Bank ( 600000.SS ) said on Saturday it has a sound corporate structure and an independently run balance sheet, in an apparent bid to reassure local clients.

But many Chinese tech start-ups, especially those with dollar funding, have opened US accounts with SVB. At least one WeChat group with several hundred members has been formed by anxious Chinese clients of SVB who want to look after their interests.

Lower risk appetite could dampen any tension from an extension of the China-Hong Kong Stock Connect on Monday. More than 1,000 China-listed A-shares and nearly 200 Hong Kong-traded shares will be added to the cross-border investment scheme.

REMAIN FUGITIVE

Li Bei, a fund manager at Shanghai-based hedge fund house Banxia, ​​said she has trimmed her stock holdings and will “maintain a relatively low exposure”, citing a lack of good opportunities.

Cautious economic stimulus for 2023 and a relatively tight credit environment mean that “it is difficult for shares to rise further from current levels and the market will remain volatile,” Banxia wrote in a letter to investors last week.

China kept its central bank governor and finance minister in their posts on Sunday, towards the end of the week-long session of the National People’s Congress (NPC), where Xi Jinping began his third five-year term as Chinese president. Li Qiang, a longtime Xi confidante, was promoted to premier to manage the economy, which grew just 3% last year.

Derek Lin, a portfolio manager with Boston-based Columbia Threadneedle Investment, said the government “needs a good year” but is in no rush to launch big stimulus, so “the market is trying to get excited, but there is some hesitation.”

Stanley Tao, founder and CIO of Golden Nest Capital Management said he does not expect a broad-based bull market in China this year, as a soft property market will remain a drag on the economy. He is cautious about technology stocks that could be affected by frictions between the US and China.

Still, domestic A shares are likely to outperform offshore China shares, which are more vulnerable to potential spillovers from the SVB collapse, analysts say.

Chaoping Zhu, global market strategist at JPMorgan Asset Management, said the SVB fiasco reflects tighter funding conditions for technology companies during the US rate hike cycle.

“The concern is that we can only see the tip of the iceberg,” Zhu said during a live broadcast on Saturday.

(This story has been re-filed to fix the date line)

Additional reporting by Samuel Shen and Georgina Lee; Editing by Raju Gopalakrishnan

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