China, HK stocks to drop over 10% in 2023 as the world's worst performers

SHANGHAI, Dec 29 (Reuters) - China and Hong Kong stocks are set for their best week in five months, but will end 2023 with yearly losses exceeding 10% as the world's worst-performing major equity markets.

** China's blue chip CSI300 Index is registering an unprecedented, third straight year of declines amid the country's slow post-COVID recovery and intermittent geopolitical tensions, but some see opportunities in its battered shares.

** "We have turned tactically positive on China," Jefferies said in its 2024 outlook, citing Beijing's economic stimulus, the rebounding yuan currency, and "trough valuation".

** On Friday, the CSI300 rose 0.1% by the lunch break, and is poised to climb roughly 2.4% for the week. Hong Kong's Hang Seng Index lost 0.5%, but is on track for a 4% weekly gain.

** However, the two stock gauges sit at the bottom of the 2023 global performance ranking, with the Hang Seng slumping roughly 14% for the year, and the CSI300 12%.

** In contrast, the MSCI world equity index is set to end 2023 up around 20%, with stellar gains recorded in markets including the United States, Japan, India and Mexico.

** China "disappointed investors who expected a strong recovery" post-COVID, William Witherell, chief global economist at Cumberland Advisors said in a note.

** "The economy was hit with widespread and persistent housing and local government debt problems, the clean-up of which continues."

** Underscoring shrivelling confidence, net foreign buying via Stock Connect this year totalled roughly 44 billion yuan ($6.20 billion) - the smallest since 2015 - as overseas investors retreated in droves since August.

** But some see deep value in the battered stocks. Shanghai hedge fund manager Li Bei said in a post on Friday that investors that are underweight on China may be forced to add positions in 2024 as the market likely bottomed.

** But, not all investors are convinced.

** AllianceBernstein admitted China stock valuation is low, and expects the country's corporate earnings growth to outpace that of developed markets in 2024.

** "While that combination is tempting, we still lack enough conviction to overweight amid the geopolitical risks and secular challenges," its strategy team, led by chief investment officer Alexander Chaloff, wrote.

($1 = 7.0977 Chinese yuan renminbi) (Reporting by Shanghai Newsroom; Editing by Sonia Cheema)