China’s biggest stocks suffer worst quarterly loss in two years

Bloomberg

China’s markets have been turned upside down this year as the prevailing narrative shifted from deleveraging to trade wars, creating headaches for investors positioning ahead of MSCI Inc. inclusion in June.
Large cap stocks, which led gains in 2017, are among the biggest decliners, while beaten down small caps are staging their best rally in more than two years. Government bonds snapped a five-quarter losing streak as fears of tighter liquidity failed to materialise. Even the currency surprised, blasting past the most bullish analyst forecast.
Big caps were too “overcrowded”, while government plans to boost development of the new economy sector increased the allure of smaller tech stocks, said Ken Chen, a Shanghai-based strategist with KGI Securities. “In the coming quarter we see more balanced opportunities in blue chips and small caps though, as MSCI’s inclusion of A shares will support blue chips”.
MSCI will add large-cap A shares to its benchmark indexes in two stages in June and September, which the index compiler projects will spur $17 billion of inflows. Complicating the outlook is China’s plan to allow its overseas-listed tech giants to have a presence on mainland bourses, which could draw huge inflows from existing equities.
The yuan has rallied 3.8% against the greenback, making it one of the world’s top performing, and last traded at 6.2673 per dollar. The Chinese currency touched its strongest level since the August 2015 devaluation. At the start of the year, the median forecast by analysts tracked by Bloomberg was for the yuan to end March at 6.65.