Analyst who made correct call on China’s market this year now favours Chinese government bonds over stocks
- Chief economist at Soochow Securities, Chen Li, lays out bull case for Chinese government bonds
- The yield on the nation’s 10-year sovereign bonds recently stayed at 3.25 per cent
China’s bonds will outperform stocks in the remainder of this year as growth in the world’s second-largest economy shows no signs of bottoming out, according to an analyst who correctly predicted the gyration on Chinese equities in the first half.
China will struggle to keep economic growth at around 6 per cent as entrepreneurs’ confidence weakens, investment growth slows and exports wane amid a looming risk of a global recession, said Chen Li, chief economist at Soochow Securities, at a briefing in Shanghai on Thursday. Meanwhile, he said the stock benchmark Shanghai Composite Index is unlikely to rise above this year’ high set in April through the rest of 2019.
“China’s economic growth is far from hitting the bottom and it’s still on the downward trajectory without stabilising,” Chen said. “The bond yields will fall to incredible levels in the next one or two years.” He did not give a specific target for the yield.
China’s economic growth is far from hitting the bottom and it’s still on the downward trajectory without stabilising
The yield on the nation’s sovereign bonds maturing in 10 years hovered around 3.25 per cent on Friday, close to its lowest level in two months. The latest economic data released last week by the statistics bureau showed industrial output and fixed-asset investment both trailed analysts’ estimates in May. China’s economy expanded by 6.4 per cent in the first quarter, the weakest pace of growth in a decade.
Chen’s call on China’s stocks this year has proved prescient. In an interview in January, he said the first quarter was the best time to buy Chinese stocks because of loose monetary policies and prospects of foreign capital inflows. He also cautioned the gains may be unsustainable going forward, with a moderation in economic growth dampening sentiment.
The Shanghai Composite had jumped 31 per cent through the middle of April this year before the run-up faltered, with policymakers moving to pare stimulus and the China-US trade relationship deteriorating. The benchmark is down 8.2 per cent from this year’s high.