Miserable May Is Dashing Hopes for a Rebound in Chinese Stocks

(Bloomberg) — Chinese stocks are facing one grim milestone after another, with waning investor confidence signaling that things will likely get worse before getting better.

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Pessimism abounds as a sluggish economic recovery, weakening yuan and tensions with the US leave investors with little reason to buy. Some China bulls are now starting to retreat in frustration, trimming portfolio allocations and rotating to other markets as the next leg of the reopening rally remains elusive. That marks a sharp reversal from earlier this year, when almost all of Wall Street’s major banks made bullish calls on the market.

Down over 6% in May, the Hang Seng China Enterprises Index is one of the worst performers among 92 global equity gauges tracked by Bloomberg. The measure of Chinese shares listed in Hong Kong flirted with bear-market territory on Tuesday, when its losses since a late January peak reached 20%. The onshore CSI 300 Index wiped out all its gains for 2023 just a few days earlier.

“There is just no positive news out there and it’s really tough for investors,” said Willer Chen, a senior analyst at Forsyth Barr Asia Ltd. “The weak macro data for April serves as a wake up call for a lot of investors, while Sino-US relationship is not helping as no major ice-breaker has been witnessed.”

READ: Niche Commodities Sound Alarm in Every Corner of China’s Economy

A slew of disappointing data from manufacturing to inflation have shown that the post-Covid recovery is sputtering, while tussles with the US continue to make investors wary. Further, the offshore yuan has weakened past 7.1 for the first time since November, deterring foreign inflow.

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Global funds are on track to trim their holdings of mainland shares for a second straight month, something that hasn’t happened since the rout in October. Domestic fund sales have fallen to near levels seen after the 2015 market collapse as investors remain risk averse, Shanghai Securities News reported Tuesday.

Citigroup Inc.’s global allocation team cut its overweight rating on…


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