(Bloomberg) -- In a year when global markets were tethered to anticipation over the end to China’s Covid-Zero policy, the nation’s virus rules and its abrupt unwinding heavily influenced local stock winners and losers.
The MSCI China Index has dropped 23%, poised for its worst year since 2008, lagging Asia’s regional benchmark as sectors such as electric vehicles and tech hardware suffered from lockdowns and weak consumer confidence. Yet China’s dizzying about-face toward Covid rules has given impetus to virus-related drugmakers like Shijiazhuang Yiling Pharmaceutical Co, and China Meheco Co., making them the gauge’s biggest gainers.
A persistent property crisis was another key theme that contributed to some of the pessimism in Chinese assets. However, a burgeoning reopening and measures aimed at extending a lifeline to troubled developers may lead to a turnaround in the sector.
Here’s a look at some of most significant stock moves of 2022 for firms domiciled in China and Hong Kong as of Wednesday’s close:
Winners
Jinko Solar Co. (+196%)
While peers JA Solar Technology Co. and Tongwei Co. were ripe for profit taking after a 2021 rally, Jinko benefited from its newcomer status to the mainland China market. The solar cell maker soared 111% in its January debut in Shanghai, and continued strong through the year as it made strides in TOPcon technology, with one of the highest solar conversion rates in the market. Analysts expect it to further ramp up capacity and expand margins, after it showed resilience amid a power crunch and bucked worries of waning overseas demand and steepened competition among local firms.
China Meheco Co. (+127%)
The vaccine maker has more than doubled this year initially on speculation, and later on confirmation, that it would get approval to sell Pfizer Inc.’s Covid pill Paxlovid in China. Its share rally accelerated on bets that demand for Covid drugs will surge as the country began abandoning Covid restrictions.
Cosco Shipping Energy Transportation Co. (+107%)
The oil and gas transport arm of China’s state-owned shipping giant has jumped after a surge in freight rates of very large crude carriers from lows earlier in the year. While analysts remain upbeat on the sector in the mid term as capacity expansion in building new vessels is on track to decelerate and Russia sanctions lead to longer routes, the threat of a global recession could dampen demand and curb further gains in rates.
TAL Education Group (+91%) and New Oriental Education & Technology (+86%)
While tutoring companies were some of the biggest underperformers last year, they made a comeback as fears over Beijing’s regulatory oversight eased. Investor sentiment for the sector also spiked after Koolearn Technology Holding Ltd.’s viral inroads in live streaming kindled hopes of new business models for the industry. But negatives still remain: on Thursday, China tightened oversight over the online education sector with a new set of restrictions that limit the fees and operating hours of private tutoring services.
Shijiazhuang Yiling Pharma (+59%)
The firm’s Lianhua Qingwen line became a household name after it was recommended by health authorities as treatment for mild Covid cases. Sold as a capsule or instant solution, the traditional Chinese medicine has also been at the core of debate as many became skeptical of its efficacy. The drug was out of stock in most pharmacies, while the going rate was at four times its procured price during the peak of infections in major cities this month. Momentum has quickly faded as demand is expected to drop, though shares have more than tripled from pre-pandemic levels.
Losers
XPeng Inc. (-81%)
Electric-vehicle maker XPeng is the biggest laggard on the MSCI China Index as it struggles with fiercer competition and a global chip shortage. Analysts have lowered their target price on the stock by more than 80% this year. Daiwa cut the stock to sell this month, given “more intense market competition and likely slower sales momentum for NEVs in 2023.”
CIFI Holdings Group (-77%)
CIFI has slumped as the property sector grappled with a cash crunch in a slowing Chinese economy that’s been hit by Covid-Zero policies. Still, the worst may be over for the sector as policy makers vow for more support and the government started relaxing virus rules this month. CIFI’s controlling shareholders bought the company shares in December to show support after the company tapped the market in a placement plan.
Nio Inc. (-69%)
The former EV darling, whose shares soared 1,112% in 2020, faced issues similar to Xpeng’s amid supply bottlenecks, costs and competition. After slashing delivery guidance for the third quarter, the carmaker’s founder this month said that he expects more challenges in 2023 with smaller government subsidies and a broader economic slowdown. This comes as Chinese sales of pure electric and hybrid cars are expected to hit a fresh record of 6.5 million this year, with contenders such as BYD Co., Tesla Inc. and Guangzhou Automobile Group topping the list, as many local players are still selling cars at a loss.
GoerTek Inc. (-68%)
The stock plunged in what’s been a choppy year for China’s hardware industry with dwindling smartphone orders and worrying inventory levels. The Apple Inc. components maker also disclosed last month it expected a revenue loss of around 3.3 billion yuan ($473 million) after “a major overseas customer” suspended orders. Investors saw this as an omen that GoerTek was at risk of being kicked out of the supply chain of the world’s largest tech firm. Reports that Apple seeks to shift manufacturing to India — a move that could have been sped up by factory riots in China’s iPhone City — have added to the dreary outlook.
Smoore International Holdings Ltd. (-67%)
The vaping devices maker suffered a blow after new regulations to ban creative flavors and forbid sales to minors came into effect this year. Meanwhile, pricing pressure in overseas markets and delayed rollouts of margin-contributing products in the US have also weighed. Analysts expect tighter regulations at home and abroad could potentially spur market share gain for Smoore’s clients over time, though visibility for profit growth in the short term may be a stretch.
