The Hang Seng index had a difficult performance in 2023 as Chinese stocks continued to underperform their Western peers. After peaking at H$22,697 in January, the index entered a deep bear market, falling by over 26% to H$16,500. In the same period, the tech-heavy Nasdaq 100 index jumped by over 50% while the S&P 500 rose by 25%.
Li Ning sell-off intensifiesMost Hang Seng constituent companies were in the red in 2023. Real estate companies like Country Garden and Longfor Properties were the most affected as the industry came under intense pressure. Technology companies like JD, Meituan, and JD Health were also deeply in red.
However, the title for the worst-performing Hang Seng index stock was Li Ning, a company that creates sportswear apparel. Li Ning stock price crashed by over 74% in 2023, erasing over $20 billion in value. It has dropped by more than 65% in the past three years.
Li Ning has started the year in a bad way as the stock continued its downtrend. It has already crashed by 10.4% this year, making it the fifth worst-performer in the Hang Seng after JD Health, Zhongsheng, Sunny Optical, and Hansoh.
Li Ning stock chart
Internal and external factorsLi Ning’s business has not been doing well because of both internal and external factors. Internally, the company made a strategic mistake of spending over $280 million to acquire a Hong Kong building. Investors criticised the move as being destruction of value. In most cases, companies lease office buildings instead of outright buying.
Externally, demand from Chinese consumers has been relatively weak as the unemployment rate has remained at an elevated level. This view was recently confirmed by Nike and JD Sports, which downgraded their forward guidance.
On Thursday, JD Sports share price collapsed by over 20%. Also, the company is facing substantial competition from the likes of ANTA and Xtep. In a recent note, analysts at SPDB noted that:
“We expect 2023 earnings to be a disappointment, as inventory clearing and competition continued to be a challenge. The stock may still be under downward pressure, in the short term, and it may take patience to wait for a rebound.”
Looking ahead, Li Ning will likely remain under pressure in the coming months as the industry continues slowing down. It is also getting highly saturated with traditional brands like Adidas and Nike competing with upcoming ones like Castore.
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