Top Shanghai analyst says best time to buy China stocks is first quarter of 2019
- Soochow Securities’ Chen Li says momentum might weaken later in the year amid downside pressure on growth
A top Shanghai-based analyst has said the first quarter offers the best opportunity for buying Chinese stocks in 2019, in stark contrast with the likes of Swiss bank UBS and the fund unit of HSBC, which have forecast a comeback later in the year.
Chen Li, chief economist at Soochow Securities, said on Tuesday that Chinese stocks, the worst performers among major markets globally last year, will trend higher in the first three months of this year. He said expectations of a slowdown in earnings growth have been digested by the market and sentiment will be boosted by the prospect of further cuts in banks’ reserve requirement ratios by Beijing, foreign fund inflows and progress in US-China trade talks.
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Chen added that these stocks might give up some of their gains during the rest of the year as growth continues to slow in the world’s second-largest economy. “The best opportunity may lie in the first quarter and after that, there will be lots of uncertainty clouding the market,” he said.
“The economy may be facing downside pressure throughout the whole of 2019, and the market may not reach consensus expectations of the economy bottoming out in the third quarter,” Chen said without giving any specific index target.
Chen, who has worked as a China stocks strategist at UBS Group and Credit Suisse Group, has been ranked among the top three experts by Institutional Investor, a monthly magazine brought out by London-based financial and business publisher Euromoney, every year between 2010 and 2017. He joined Soochow in November 2018.
The benchmark Shanghai Composite Index has rebounded by 3.4 per cent so far this year, after a 25 per cent slump in 2018.
Chen said stocks may be buoyant in the first quarter as investors buy ahead of a decision by index compiler MSCI on February 28 on quadrupling the representation of Chinese equities in its global benchmarks. The possible inclusion will probably bring in 250 billion yuan (US$36.7 billion) from passively managed funds overseas, he said.
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Loosened monetary policies will also fuel a rally in stocks, he said. China’s central bank may lower the reserve requirement ratio at commercial lenders by a total of 6 percentage points this year, in as many as five cuts, while leaving the benchmark interest rate unchanged, said Chen.
This optimism, however, might give way to angst about persistently slowing growth during the rest of the year, he said. Waning external demand amid slower expansion in the United States, weaker consumer spending, a sluggish housing market and weakening infrastructure investment will provide the drag on growth in 2019, said Chen.
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China’s economy grew 6.4 per cent in the fourth quarter last year, its slowest pace since 2009, according to data released by the Statistics Bureau on Monday.
