The bear facts: what can we expect from the stock market in China this week
Stock markets are bracing for another volatile week on worries over further devaluation of the yuan, a weakening economy and share sales of major shareholders after the end of a ban.
“So far China in 2016 appears to be everyone’s worst nightmare come true,” Haitong Research said in a note, adding that it believes both the yuan and mainland A-shares will go further down after the Shanghai stock market fell 10 per cent last week and the offshore yuan shed 1.75 per cent.
“Given the weak economic outlook, depreciation pressure and lower corporate profitability, upside for Chinese markets looks limited, with much of the volatility caused by government intervention rather than fundamentals,” Haitong Research said.
READ MORE: China regulators suspend circuit breaker mechanism, citing need for ‘stability of markets’
Echoing the bearish outlook, Christopher Cheung Wah-fung, legislator for brokers, said: “The stock markets in both Hong Kong and mainland China are likely to continue to be volatile this week, more likely to go down rather than up...Beijing may press the ‘national team’ into action but that is unlikely to help as sentiment is bearish.”
Brokers said hectic buying by the ‘national team’ on Friday was why Shanghai and Shenzhen markets staged a V-shaped rebound. The market was also helped somewhat after the China Securities Regulatory Commission scrapped the circuit breaker following the rout.
“The removal of circuit breaker will help stabilise the market. However, the weak mainland economy and [expectations of a hike in] US interest rate would continue to drag the market down,” said Jeffrey Chan Lap-tak, founding partner of Oriental Patron Financial.
“The national team will appear again this week if stocks plunge but such interventions would only distort the market further.”
The Shanghai Composite Index fell 10 per cent last week, wiping off last year’s 9 per cent gain. Hong Kong stocks also dropped 6 per cent in the first week. The sell-off spread to other markets from the US to Japan.