FirstFT: US investors shun Chinese stocks

Investor interest in Chinese stocks has cooled significantly after hitting a record late last year, as political tensions between the two countries grow, according to fund managers and trading data.

Trading in the most liquid US-listed options that track Chinese stocks — which give a way for US investors to gain exposure to China without having an overseas presence — has more than halved since hitting a record last November.

Direct purchases of Chinese stocks by foreign investors have also slowed dramatically after a record-breaking start to 2023.

The pullback by US investors comes despite growth in the Chinese economy that exceeded expectations in the first quarter. Gross domestic product expanded by 4.5 per cent year on year in the three months to the end of March, well above the 3 per cent recorded in 2022.

But tensions between the US and China have grown in recent months over the security of Taiwan, a suspected Chinese spy balloon entering US airspace and Washington’s export controls on high-end technology to China.

Christel Rendu de Lint, head of investments at fund firm Vontobel, said many investors had been responding to the escalating tensions by seeking funds that would invest in emerging markets but exclude China.

Here’s what else is happening today:

• Interest rates: The US Federal Reserve is expected to deliver another quarter-point rise, bringing the fed funds rate to a target range of 5-5.25 per cent, the highest level since mid-2007.

• Results: Qualcomm, Kraft Heinz, CVS Health, Estée Lauder, Etsy, TripAdvisor and Zillow all report. See the full list in our Week Ahead newsletter.

• Economic data: The Institute for Supply Management updates its non-manufacturing index.

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Five more top stories

1. PacWest and Western Alliance were the latest US regional banks to get caught in investors’ crosshairs. PacWest, seen as one of the weakest of the midsized regional banks, was briefly halted for volatility and closed down 27.8 per cent. Western Alliance fell 15.1 per cent. Both banks have drawn scrutiny because of their similarities to Silicon Valley Bank and First Republic.

2. Shares in the education sector fell sharply after Chegg warned that interest in ChatGPT was starting to hurt its sales. The edtech company’s shares plunged by half yesterday, and the revenue warning rattled similar companies including Pearson, Duolingo and Udemy.

3. Harvey Schwartz has been holding extensive reviews at Carlyle Group after taking over as chief executive in a bid to present himself as a keen listener, in contrast with his reputation as a corporate bruiser at Goldman Sachs. But few think the listening sessions will last for much longer.

4. Britain’s financial regulator has proposed sweeping changes to the country’s listing regime, after a string of companies shunned the City of London in favour of New York. The listings revamp will make it easier for companies to join the London market. Read more on the Financial Conduct Authority’s plans.

5. A Financial Times investigation has revealed that a Russian spy network managed to smuggle sensitive technology from EU companies to fuel Vladimir Putin’s war on Ukraine despite a US-led crackdown. Read more on the investigation.

The Big Read

In recent weeks, more than a dozen politicians, activists, judges, trade unionists and a leading independent editor have been arrested in Tunisia, in what Amnesty International has called “a politically motivated witch hunt”. Here’s how President Kais Saied, who staged a power grab in 2021, is dismantling the country’s young democracy.

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Chart of the day

Demand for diesel, the lifeblood of the US economy, has fallen sharply in recent months as freight markets cool. And there are indications that petrol demand may be beginning to wane as motorists look to dial back spending. Taken together, analysts say, these trends suggest a deceleration in the world’s leading economy could soon give way to contraction.

Take a break from the news

On Friday, the Metropolitan Museum of Art in New York will open to the public a major Karl Lagerfeld exhibition, featuring around 150 garments from the late Chanel designer’s 65-year career in fashion. But on Monday night celebrities, supermodels and designers swanned up the beige carpet and into the annual Met Gala to pay tribute to the designer — and his cat.

Additional contributions by Tee Zhuo and Emily Goldberg