Don’t chase China market rebound as weak foundation attracts stock bears, JPMorgan says

Name: Covid lockdowns spark rare protest in southern Chinese city of Guangzhou
Uploaded: 2022-11-21T02:00:16.000Z
Duration: 1 min 27 s
Description: Covid lockdowns spark rare protest in southern Chinese city of Guangzhou

Investors should not chase high-flying Chinese stocks as market fundamentals are still weak, JPMorgan Private Bank says

China’s softening stance on zero-Covid will be tested amid a flare-up in cases in southern Guangdong province, it said

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epa10262578 A man walks next to the large screen showing stock and economic data in Shanghai in October 2022. Photo: EPA-EFE

Jiaxing Li

Published: 10:00am, 21 Nov 2022Updated: 10:19am, 21 Nov 2022

Investors should not chase high-flying Chinese stocks as market fundamentals are still weak despite hopes for a pivot in Beijing’s zero-Covid policy, JPMorgan Private Bank said. The recent rebound was “mainly driven by short covering.”

Hopes and signs of a pivot in Beijing’s zero-Covid policy and property market clampdown have helped fuel a US$769 billion rally in equities over the past three weeks in Hong Kong. The Hang Seng Index climbed 22.5 per cent while the CSI 300 Index of onshore stocks rose 8.4 per cent from the end of October.

The private banking arm of America’s biggest bank is not prepared to call a “turning point” just yet on Chinese stocks. China’s softening stance on zero-Covid will be tested amid a flare-up in cases in southern Guangdong province, it said. Policy support for the real estate market is unlikely to spur an immediate recovery in home sales or a meaningful upgrade in corporate earnings, it added.

“We would not recommend fundamental investors to chase this rally,” Asia investment strategists including Alex Wolf and Timothy Fung wrote in a report on Friday. “Momentum traders should set tight stop-losses given the technical nature of this rebound. Tactical traders are likely to lock in profits, while short-sellers will start rebuilding positions.”

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Covid lockdowns spark rare protest in southern Chinese city of Guangzhou

The view may pour cold water on the market’s new-found optimism among analysts and money managers including Goldman Sachs and Allianz Global Investors. They offered bullish views on the market outlook even as official reports showed home sales and retail spending remained uninspiring this quarter.