China’s US$11 trillion stock market needs cyclical catalysts to end lethargy amid debates on growth outlook, BCA Research says

Name: China’s economy expands record 18.3 per cent in the first quarter of 2021
Uploaded: 2021-04-29T23:30:07.000Z
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Description: China’s economy expands record 18.3 per cent in the first quarter of 2021

Defensive stocks’ strength over cyclicals and benchmark gauges bode ill for the broader market and economic growth, BCA Research says

Cyclical stocks – proxied by energy, materials, and consumer discretionary among others in MSCI China gauges – remain depressed in onshore and offshore markets

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Zhang Shidong

Published: 7:30am, 30 Apr 2021Updated: 7:30am, 30 Apr 2021

China’s US$11 trillion stock market will have to wait for a couple of breakthroughs from cyclical and defensive sectors before prices can snap out of their tight range over the past two months and mount another rally.

The recent market-beating performance of defensive stocks and their appeal over cyclical peers are poor signals for foreign investors, Jing Sima, a strategist at BCA Research, wrote in a note to clients on April 28. The trends reflect concerns that China’s economic growth has peaked after last quarter’s 18.3 per cent annualised expansion.

The view has gained traction as the market languished in a tight range over the past two months as foreign funds bet US$432.6 billion of their money in the market. Chinese cyclical stocks – proxied by energy, materials, and consumer discretionary among others in MSCI China gauges – have remained depressed in onshore and offshore markets, Sima noted.

“Given that the indicators remain firmly in a risk-off mode, we maintain our view that China’s economy has reached its peak, and policy has tightened meaningfully,” Sima said. “Our cyclical underweight position, in both absolute terms and within a global portfolio, is warranted.”

BCA Research last month downgraded its tactical (zero to three months) and cyclical (six to 12 months) positions to underweight relative to global benchmarks, after lowering them to neutral in mid-January, citing valuations and policy miscalculation risks amid tightening regulations.

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China’s economy expands record 18.3 per cent in the first quarter of 2021

The CSI 300 Index of biggest stocks listed in Shenzhen and Shanghai, reached a 13-year high on February 10, slumped more than 14 per cent within a month, and has since traded within a 240-point range.