How China’s US$12.3 trillion stock market is insulated from Russia-Ukraine conflict while Hang Seng hits two-year low

On Mar 3, 2022 38

Mainland-listed stocks are insulated from deeper war-related losses given limited sales exposure in the region. Photo: Reuters

Only two companies among 4,400 – Great Wall Motor and Dezhou United Petroleum – have sizeable revenue linked to the conflict region
Shares of Great Wall have fallen 6.4 per cent in Shanghai since the invasion, while Dezhou advanced 33 per cent on the back of oil rally

China’s onshore stocks are turning into a shelter for investors amid a sell-off in riskier assets triggered by the Russia-Ukraine war, as the bulk of listed companies have limited business exposure in the eastern European nations.

The Shanghai Composite Index has slipped 0.1 per cent since Russia invaded its neighbour on February 24, outperforming all major equity gauges in Asia-Pacific, according to Bloomberg data. The Hang Seng Index ranked as the worst with a 5.6 per cent loss.

Among the 4,400 companies trading on the Shanghai and Shenzhen exchanges, only two – Great Wall Motor and oil-drilling equipment maker Dezhou United Petroleum – have exports to Russia, where certain entities, individuals and the central bank are facing sanctions from the US and its allies.

China’s US$12.3 trillion stock market is also better insulated from the global turmoil as traders bet China will step up efforts to shore up growth. The annual legislative and consultative meetings, or “the two sessions,” will take place this week. Policymakers in attendance are expected to endorse stimulus measures.

“Risk appetite will be dented in the short term,” said Wu Kaida, an analyst at Tebon Securities in Shanghai. “However, the geopolitical conflict isn’t going to have a big impact on China’s economy. Pro-growth measures will improve expectations, and stocks will rise again.”

Great Wall Motor, a carmaker based in northern Hebei province known for its Haval sport-utility vehicles, derived 3.2 per cent of its annual sales from Russia, according to Bloomberg data. Dezhou United generated 2.3 per cent of its sales from there.

Shares of Great Wall have fallen 6.4 per cent in Shanghai over the past seven days of the Ukraine conflict. Dezhou United advanced 33 per cent as a rally in crude prices boosted offshore oil explorers and equipment suppliers.

Shanghai-based maker of oil- drilling machinery Hilong Holdings has the biggest exposure to Russia among Hong Kong-listed companies with 22 per cent of sales, according to Bloomberg data. Russia accounted for 17 per cent of the revenue of cryptocurrency exchange owner Huobi Technology. Both stocks have declined by at least 1.3 per cent since the invasion.

Seven other companies, including cosmetics maker L’Occitane and consumer electronics retailer Alpha Professional, have less than 5 per cent of business in Russia, the data showed.

While China is Russia’s biggest trade partner, it only exported 2 per cent of its goods to Russia last year. Russia accounted for 13 per cent of the world’s oil consumption and 16 per cent of natural gas in 2020. It contributed one-fifth of the world’s wheat exports, according to GF Securities.

Morgan Stanley said China and its Asian neighbours will be able to withstand the spillover effect from the Ukraine war because of low price-pressure in the region, healthy account balances and higher real interest rates.

“Asia has better macro stability buffers, a lower starting point for the oil burden and fiscal room to respond as compared with previous episodes of geopolitical tension,” the US bank said in a February 27 report.

Author: Zhang Shidong, SCMP