China’s stock rebound may be déjà vu but unsustainable, says top strategist

Investors may find buying into the ongoing rebound of Chinese stocks a tricky game.

As many of them, taken by surprise of the sudden rally, lament that they have not jumped onto the bandwagon quick enough, the strategist from the investment banking unit of Bank of Communications who correctly predicted a crash on Chinese equities in 2015, has warned the rebound could be short-lived.

The buying began gathering pace last week after the Shanghai Composite Index, the worst performer among the world’s major benchmarks, touched a four-year low. For the week, the gauge jumped 4.3 per cent for the biggest gain for the five-day period since March 2016, with turnovers also climbing to decent levels.

While there was no major immediate catalyst that would have fuelled the gains, Sinolink Securities said the US’ announcement of tariffs on US$200 billion of Chinese imports put a pause to further escalation of the US-China trade war, taking some pressure off the equity market that has been clouded by the trade dispute and China’s deleveraging this year.

“It’s a technical rebound,” said Hong Hao, head of research at Bocom International Holdings in Hong Kong. “Previously the market has been oversold. But fundamental issues remain, such as the trade war, the slowdown and the coming US midterm election.”

The Shanghai Composite had already slumped by as much as 20 per cent this year. It slipped 0.6 per cent to 2,781.14 on Tuesday, as the market reopened after being shut for a public holiday a day earlier. Consumer-staples stocks have led the pack since the start of the rebound, with liquor giant Kweichow Moutai and Jiangsu Yanghe Brewery Joint-Stock rising at least 7.9 per cent over the past week.