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China’s market rebound in second half looks unlikely as policy tightening will hold back rally, BCA Research says
- China’s domestic policy backdrop and economic fundamentals do not support a sustained rally in stocks in next six months, Canadian research firm says
- Chances of Beijing reversing policy tightening in case of a weakening in sentiment are low
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A rebound in China’s onshore stocks will probably lose traction in the second half, as a shrinkage in aggregate financing foreshadows a moderation in economic growth and policy normalisation is set to continue to avert asset bubbles, according to BCA Research.
The Canadian research firm continues to recommend an underweight position in yuan-denominated stocks on the Shanghai and Shenzhen exchanges after downgrading the shares by two notches from January to March.
The recent uptick in Chinese stocks has largely been underpinned by overseas inflows betting on a further strengthening of the yuan, Sima Jing, a strategist at BCA, wrote in a report dated June 16.
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The benchmark Shanghai Composite Index had risen 5 per cent through Tuesday since a March 10 low. It dropped almost 1.1 per cent on Wednesday.
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China’s economy expands record 18.3 per cent in the first quarter of 2021
China’s economy expands record 18.3 per cent in the first quarter of 2021
“China’s domestic policy backdrop and economic fundamentals do not support a sustained rally in Chinese stocks in the next six months,” the report said.
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“Policy tightening has not reversed course and there is an escalating risk that economic data will surprise the market to the downside in the third quarter.”
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