China casts shadow over London stocks

0

China casts shadow over London stocks as UK businesses exposed to President Xi Jinping’s tightening grip on the economy

  • Earlier this week, shares of Chinese companies plunged after Xi took power at the Communist Party Congress, raising fears of tougher regulations
  • This was accompanied by a fall in the value of China’s currency, the yuan, which fell to its lowest level against the dollar in nearly 15 years.
  • The developments also threaten to engulf the London market, as the FTSE 100 index contains a number of companies with broad exposure to the Chinese economy.

Companies listed on the London Stock Exchange (LSE) with high exposure to China face a battering as President Xi Jinping’s tightening grip on the country hits its domestic economy and threatens global growth.

Earlier this week, shares of Chinese companies plunged after a power grab by Xi at the Communist Party Congress, raising fears of tougher regulations and crackdowns on the business elite.

This was accompanied by a tumble in the value of China’s currency, the yuan, which fell to its lowest level against the dollar in nearly 15 years as traders feared Xi’s policies could continue to unravel. slow down growth.

Red Army: Chinese President Xi Jinping inspects a guard of honor during the Horse Guards parade during a state visit to the UK in 2015

The developments also threaten to engulf the London market, as the FTSE 100 index contains a number of companies with broad exposure to the Chinese economy, which is creaking under the weight of Beijing’s zero-Covid strategy and a crisis. of its real estate sector.

While rising interest rates have been a boon for banks around the world, a growing crisis in China’s property market is alarming. The vulnerability of UK equities to this was highlighted this week when HSBC was forced to set aside £947m in its third quarter to cover bad debt accumulated due to property instability. Chinese.

HSBC has also found itself caught in the middle of the growing East-West divide as China’s growing authoritarianism makes it harder for the bank to operate in the country without drawing criticism from politicians and activists. .

Earlier this year, the bank sparked furor after becoming the first foreign lender to install a Chinese Communist Party (CCP) committee in its investment banking branch in the country.

These usually involve three or more employees who are CCP members and are a way for party officials to be installed in the upper ranks of a company. And HSBC is facing pressure from Ping An, a major Chinese insurer and its largest shareholder, to spin off the bank’s Asian business.

Ping An says HSBC’s global reach is becoming unsustainable as political tensions escalate. Such a move, along with the CCP’s growing influence over the bank’s operations, could have profound implications for the London market, given that HSBC is one of the largest companies in the LSE with a market capitalization of £88bn. of pounds sterling.

The value of China's currency, the yuan, fell to its lowest level against the dollar in nearly 15 years as traders fled amid fears that Xi's policies will continue to dampen growth

The value of China’s currency, the yuan, fell to its lowest level against the dollar in nearly 15 years as traders fled amid fears that Xi’s policies will continue to dampen growth

Keith Bowman, investment analyst at Interactive Investor, pointed out that amid rising tensions, caution around investing in China “has grown” and that Xi’s iron grip on power “doesn’t do much. to allay concerns.

Meanwhile, Interactive’s senior personal finance analyst Myron Jobson said while there were “no easy answers” regarding investing in China, the region was “difficult to avoid despite its risks. policies”.

Other blue chip companies that could bear the brunt of a Chinese slowdown and growing government interference in the economy are major miners, which export large amounts of raw materials to the country.

Antofagasta, Anglo-American, Glencore and Rio Tinto may find their stock performance on the back of Chinese demand, with any signs that its growth rate could slow, sending a chill through the industry.

The recent weakness in the Chinese currency could also have implications, with analysts at broker City SP Angel predicting that the lower value of the yuan will “weigh on copper prices” due to an impact on the purchasing power of Chinese buyers.

Meanwhile, Scottish Mortgage Investment Trust, a fund popular with retail investors and savers, has exposure to China through large holdings in food delivery group Meituan and tech giant Tencent, which together represent 6.2% of its portfolio.

Shares of both companies have fallen this week in response to growing unease surrounding China’s economic outlook. Also in the crosshairs is luxury fashion brand Burberry, which relies on the huge Chinese consumer market for much of its sales.

Shares of the company took a hammer blow in the spring and summer after lockdowns were reimposed in several major Chinese cities, including Shanghai, meaning many shoppers were confined to their homes.

Elsewhere, FTSE 100 health, safety and quality testing group Intertek – which has significant operations in Shanghai and makes around 20% of its revenue from China – has been hit by lockdown measures. Shares have fallen 33% so far this year.

Other LSE-listed companies likely to be exposed include drinks maker Diageo, which sells premium spirits to China’s burgeoning middle classes, and student housing group Unite, which earlier reported this year a “significant growth” in demand from Chinese students studying abroad. , and sofa seller DFS who sources some of its items in the country.

Advertising

Share.

Comments are closed.