China’s CSI300 Index (.CSI300) dropped 4% last week, while Hong Kong’s Hang Seng (.HSI) tumbled 6%, as China’s moderate GDP growth target of around 5% for 2023 – set during the annual session of the rubber-stamp parliament – dashed hopes for a big stimulus. The market mood could be damped further following Friday’s sudden collapse of start-up focused lender SVB (SIVB.O), which stirred heated discussion over the weekend in China about its fallout. “The SVB failure is a barometer of macro risks … reflecting how asset prices are being impacted by central bank rate hikes,” said Yuan Yuwei, hedge fund manager at Water Wisdom Asset Management, predicting tougher times for highly-leveraged firms with illiquid assets. Although the event will unlikely trigger another financial crisis, it could have a negative psychological impact on China markets, he said. SVB’s Chinese joint venture with Shanghai Pudong Development Bank (600000.SS) said on Saturday that it has a sound corporate structure and an independently operated balance sheet, in an apparent effort to pacify local clients. But many Chinese tech start-ups, especially those with dollar funding, have opened U.S. accounts at SVB. At least one WeChat group with several hundred members has been formed by anxious Chinese clients of SVB seeking to safeguard their interest. Lower risk appetite could mute any excitement from an expansion of the China-Hong Kong Stock Connect on Monday. More than 1,000 China-listed A-shares, and nearly 200 Hong Kong-traded stocks will be added to the cross-border investment scheme. REMAIN VOLATILE Li Bei, fund manager at Shanghai-based hedge fund house Banxia, said she has slashed stock holdings, and will “maintain a relatively low exposure”, citing a lack of good opportunities. Prudent economic stimulus for 2023 and a relatively tight credit environment means “it’s hard for stocks to further go up from the current level and the market will remain volatile,” Banxia wrote in a letter to investors last week. China kept its central bank governor and finance minister in their posts on Sunday, toward the end of the week-long session of the National People’s Congress (NPC), where Xi Jinping began his third five-year term as Chinese president. Li Qiang, a longtime Xi confidant, was promoted to premier to steer the economy, which grew just 3% last year. Derek Lin, a portfolio manager with Boston-based Columbia Threadneedle Investment, said the government “does need a good year” but isn’t rushing to launch big stimulus, so “the market is trying to get excited, but there is some hesitancy.” Stanley Tao, founder and CIO at Golden Nest Capital Management said he doesn’t expect a broad-based bull market in China this year as a soft property market will remain a drag on the economy. He is cautious about tech stocks that could be impacted by US-China frictions. Still, domestic A-shares will likely outperform offshore China stocks, which are more vulnerable to potential spillover from the SVB collapse, analysts say. Chaoping Zhu, global market strategist at JPMorgan Asset Management, said the SVB fiasco reflects tighter financing conditions for tech firms during the U.S. rate hike cycle. “The concern is that we could be just seeing the tip of the iceberg,” Zhu said during a live broadcast on Saturday.