(Bloomberg) — Investors who two years ago bought into the idea that China’s consumer energy and green energy stocks would score a big win from President Xi Jinping’s renewed economic agenda would have seen their holdings decline in 2023.
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China Meidong Auto Holdings Ltd, sportswear maker Li Ning and energy storage systems maker Pylon Technologies Co all fell at least 68% in 2023, making them among the worst-performing stocks on the MSCI Asia-Pacific index. Which includes more than 1,500 members.
Such stocks have been seen as havens amid regulatory crackdowns by the Chinese government because they are in line with Xi’s policy priorities, including a “shared prosperity” drive to narrow the wealth gap, as well as developing the renewable energy sector. Instead, they suffered disproportionate losses as China’s recovery from coronavirus lockdowns faltered and the worsening real estate 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 indicator of future returns,” said Paras Anand, chief investment officer at Artemis Investment Management in London, which is overseeing the investment. Equivalent to about $29 billion. “Merely aligning around ‘shared prosperity’ as a topic has proven to have its own risks.”
It was not expected that it would end like this. In late 2021, Goldman Sachs Group Inc. 50 Chinese stocks said they would benefit from Xi’s “shared prosperity” drive, including Li Ning and LONGi Green Energy Technology Co.
They have instead been among the underperformers this year as a faltering real estate market and job uncertainty sapped consumer spending. Meanwhile, an oversupply of equipment and falling prices for critical metals, solar and wind power have pushed renewables stocks lower.
Eight of the top 10 losers on the MSCI Asia-Pacific Index this year are from the Chinese consumer or renewable energy sector, the other two being Chinese real estate companies.
Innovation premium
On the positive side, prices of smartphone maker Xiaomi Corp and supplier Huawei Technologies Co rose, as investors were attracted to their innovations. Chinese semiconductor stocks also performed well as the government pumped money into the industry following new restrictions imposed by the United States and Europe.
Read more: Huawei suppliers top Asian stock index to defy bad October
“Most investors I talk to are looking at areas of growth” such as equipment makers that are key to China’s technological transformation, said Herald van der Linde, head of Asian equity strategy at HSBC Holdings Plc in Hong Kong. “Shared prosperity does not automatically translate into faster growth for listed companies.”
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