Stocks in China suffer their worst quarter in years

As China struggles to bolster consumer confidence and keep the economy afloat, some major onshore stock indices have endured their toughest quarter since the country’s market crash in 2015.

The CSI 300 Index, which consists of the largest companies listed in Shanghai and Shenzhen, fell nearly 15% in the three months ended March 31, while the Shenzhen Component Index, which consists of 500 stocks, fell 18%. For both benchmarks, this was the largest quarterly percentage decline since Q3 2015.

The Shanghai Composite Index, which includes more large and less volatile SOEs, fell about 11%, its worst performance since the fourth quarter of 2018.

Companies listed in mainland China tend to be more focused on sectors driven by the domestic economy, as opposed to Chinese stocks listed in the US and Hong Kong, said Jason Liu of Deutsche Bank.

These include companies involved in areas such as banking, consumer goods and industrials, said Mr. Liu, head of the chief investment office for Asia at international private bank Deutsche Bank.

Chinese growth and consumer confidence have been hurt by the country’s battle with the Omicron variant of Covid-19, which has led to widespread lockdowns and factory closures.

“A lot of this has very direct implications for industrial production, consumer spending and all these very domestically driven sectors, and I think people can feel that,” Mr. Liu said.

Meanwhile, the war in Ukraine has pushed up global commodity prices, which in turn is hurting the profit margins of consumer goods companies such as breweries and bottled water producers.

China’s economically important real estate market is also still faltering, despite Beijing’s recent efforts to ease real estate developers’ access to finance.

While many Chinese developers are listed in Hong Kong rather than on land, Zhikai Chen, head of Asian equities at BNP Paribas Asset Management, said the sector’s difficulties have had a huge secondary impact on the broader economy.

“There is still a huge question mark that we are here now, what will the government do? We’re at a point now where investors are basically saying, show us the money,” said Mr. Chen.

Onshore stocks underperformed some offshore counterparts such as Hong Kong’s Hang Seng China Enterprises Index, which fell 8.6% in the first quarter.

A pledge by policymakers led by Vice Premier Liu He in mid-March to take a more market-friendly approach helped contain a punitive sell-off in offshore stocks.

Indices such as the Nasdaq Golden Dragon China Index for US-listed Chinese stocks rallied, but the recovery for onshore stocks was less pronounced.

The Golden Dragon Index fell on Thursday, ending the quarter down almost 21%. That was still a smaller drop than the 31% drop seen in the third quarter of 2021.

While Mr. Liu’s intervention provided reassurance, no significant action has been taken, nor has Beijing provided a sufficiently strong stimulus package, said Louis Lau, director of investments at Brandes Investment Partners in San Diego. “I think it was a bit disappointing after Liu He spoke up,” he said.

Foreign investors sold mainland China stocks through the Stock Connect trading link in March, net worth 45.1 billion yuan, or the equivalent of $7.1 billion. That was the third largest drop since the program began in 2014, wind data showed. Some investors and analysts said concerns about the geopolitical risk of investing in China had grown following Russia’s financial isolation.

According to a Chinese regulator, the new Beijing stock exchange will help smaller companies attract more investment to fund innovation. Its debut comes as China tightens its grip on companies seeking overseas listings. Anna Hirtenstein from the WSJ explains. Photo: Li Xin/Zuma Press

Major US stock indices suffered their worst performance in two years in the first quarter. The S&P 500 fell 4.9% over the past three months, while the Nasdaq Composite fell 9.1%.

write to Rebecca Feng at rebecca.feng@wsj.com

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