HSBC-backed fund Jintrust tips Chinese stock rebound to continue
Benchmark Shanghai Composite Index has rebounded 3pc over the past two days after sliding to its lowest level in 28 months
Chinese stocks are being tipped by a leading fund management firm backed by HSBC Holdings to rebound in July, as the impact of the escalating trade friction with the US subsides and eased domestic monetary policies bolster sentiment.
With US$34 billion worth of tariffs already implemented and a potential US$16 billion more on the way, HSBC Jintrust Fund Management – a Shanghai-based money manager with the UK lender as the shareholder – is suggesting the knock-on will lower China’s economic growth by just 0.1 of a percentage points.
But expectations about loosening liquidity after a third cut in banks’ reserve requirement ratios this year will more than compensate, by boosting investor risk appetite
“The valuation of the A-share market has already dropped to a relatively low level after a significant decline,” the firm said in its monthly market report, referring to yuan-traded stocks on the mainland’s exchanges. “As the panic subsides, the market is in for a rebound.”
HSBC Jintrust has 26.6 billion yuan (US$4.03 billion) of assets under management.
The rally in Chinese equities started right after US President Donald Trump' administration announced the US$34 billion duties on Chinese goods will take effect on Friday, as dip buyers came in on the bet that there would be a reprieve of the trade spat between the world’s two largest economies.
The benchmark Shanghai Composite Index has rebounded 3 per cent over the past two days after sliding to its lowest level in 28 months.
The fallout of the trade brawl remains mostly psychological for now, HSBC Jintrust said, instead of causing really severe damage to economic fundamentals, and investors have their eyes back on corporate earnings as the latest interim reporting season looms.
This time around the spotlight is on cloud computing, new-energy vehicle, semiconductor and military sectors, which are expected to report improved earnings, it said.
The asset-management firm is also bullish on China’s sovereign bonds, as the shift to the relatively loose neutral monetary policy is expected to inject further liquidity into the debt market and drive yields down.
Still, it remains cautious about credit bonds with lower ratings, saying the risk of defaults in payments remains.