The Unsung Winners and Biggest Losers of China's Rocky Markets in 2021
(Bloomberg) -- In a year that’s seen China’s “common prosperity” agenda roil global equity markets, the nation’s policies also created a greater divide between stock winners and losers at home.
Policy direction looks set to drive market sentiment in 2022 as well, with a twice-a-decade party congress that could extend President Xi Jinping’s term. Jolted by Beijing’s regulatory onslaught, education names such as Gaotu Techedu Inc. and property developers like China Evergrande Group are at the bottom of the MSCI China Index, which has plunged 25% in 2021. Giving them company, not surprisingly, are some of the nation’s tech titans that saw their value diminish in the world’s biggest stock rout.
Meanwhile, China’s push to reach carbon neutrality by 2060 spurred some big gains in the electric vehicles and solar space, while material shares emerged as dark horses, riding on higher commodity prices given a supply-demand mismatch.
“The positive sentiment around renewable stocks has just started,” and growth will continue over the next few years, said Michelle Qi, head of equities at Eastspring Investments Shanghai. The technology sector may see a turnaround given “early signs of improvement” in regulation, she said.
Here are some of the unsung heroes and the overlooked laggards this year, based on firms that are domiciled in China and Hong Kong with a market capitalization of more than $10 billion.
Zangge Mining Co. (372%)
Shares of the previously thinly-traded firm in the eastern Qinghai province have been on a tear as China looks domestically to meet surging demand for metals. Zangge’s revenues from its brine-to-lithium segment increased significantly in the first half, as prices for the mineral surged over 400% this year.
Chongqing Sokon Industry Group Co. (226%)
Sokon’s shares took off after it reported an 844% surge in EV sales in February, buoyed by a collaboration with Huawei Technologies Co. A demo video of Huawei’s autonomous driving capabilities went viral, and the tech firm in December revealed an upgraded tie-in vehicle with Sokon. However, cracks are starting to show after a correction of 20% this month, and only one out of seven of the vehicles Sokon produces is actually green.
Trina Solar Co. (226%)
Despite detained goods and increased scrutiny from the U.S., bullish climate goals by the world’s largest economies have prevailed for the maker of photo-voltaic modules. Traders may have good reason to remain upbeat-- China is still crucial for supplying nearly all of the the world’s solar wafers, and analysts are predicting 30% growth for the sector through 2025.
China Resources Power Holdings Co. (212%)
One of China’s largest power generators by market value, the firm has won investor favor for its mix of wind and solar, which helps it stand out among other coal-fired operators. Such long unloved utilities firms also became top bets as China allowed for greater fluctuations in prices after a power crunch posed a threat to its economy.
Orient Overseas International Ltd. (140%)
The container shipper benefited while logistics bottlenecks and port backlogs in 2021 plagued supply chains. In the first half, Orient saw its largest six-month earnings since its 1992 initial public offering. While a rally in freight prices may still have legs amid prolonged pandemic-related disruptions, Orient’s shares are now 7% off a peak in August amid more pessimistic views on supply lines.
Haidilao International Holding Ltd. (-72%)
China’s biggest hot-pot chain was an unlikely candidate to become the year’s worst performer, as consumer stocks were beneficiaries of a policy shift toward domestic-driven growth despite weaker spending. But an aggressive expansion strategy and slower-than-expected sales recovery took their toll, with $45 billion of Haidilao’s market value being wiped out since a February peak.
Alibaba Health Information Technology Ltd. (-72%), JD Health International Inc. (61%)
The online health-care sector was among the victims of Beijing’s tightening regulatory oversight. Losses deepened amid a push for more protections and guarantees for prescription drugs sold through the Internet, followed by draft rules from regulators to ban online consultations for initial diagnosis.
China Gas Holdings Ltd. (-48%)
Soaring natural gas prices and government intervention in electricity consumption generally weighed on gas distributors, but a set of disappointing earnings bruised China Gas. Its shares plunged by the most since 2000 in late November. That’s after a fatal pipeline explosion raised safety concerns and hurt investor confidence.
Hansoh Pharmaceutical Group Co. (-50%), Jiangsu Hengrui Medicine Co. (-46%)
Pharmaceuticals were a mixed bag after previous years of outperformance, weighed by disappointing earnings, policy pressure and heightened domestic competition. The broader CSI 300 Health Care Index fell 17% this year, the first drop in three years.
Xiaomi Corp. (-44%)
Xiaomi was one of the biggest losers among China’s technology giants even as it dodged Beijing’s crackdown. Despite overtaking Apple Inc. to become the world’s number two smartphone manufacturer, some analysts lowered price targets, citing slowing demand, strong competition and supply chain difficulties.
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