Will China stocks outperform gold, which has risen 33 per cent this year?

Chinese stocks might beat gold, as economic and profit growth picks up on mainland, Haitong Securities says

Mainland stocks will be held back by heightened US-China tensions, technical resistance: Bocom International

Reading Time:2 minutes

A further gain on stocks might be limited, as the Shanghai Composite might meet resistance at 3,500, which is within 4 per cent of its Monday close, says an investment banker at Bocom International. Photo: EPA-EFE

Published: 5:30pm, 10 Aug 2020Updated: 11:07pm, 10 Aug 2020

What will be the year’s most appealing asset class, gold or Chinese stocks? It will probably be Chinese stocks – as an ongoing economic recovery in the world’s second-largest economy gathers strength and boosts corporate earnings and the appetite for risk assets – according to Shanghai-headquartered Haitong Securities.

While a 33 per cent jump in the precious metal this year is currently ahead of the 11 per cent gain on China’s benchmark Shanghai Composite Index, a dim outlook for global growth because of the coronavirus pandemic has cast doubt on a comeback by inflation, a key factor needed to sustain a further run-up on gold and other commodities, Xun Yugen, a strategist at the brokerage, said.

China’s successful containment of Covid-19, which has infected about 20 million people worldwide, will further buoy its economic and earnings growth, he said. Profit growth at mainland China-listed companies will probably accelerate to 13 per cent this quarter and 20 per cent for the following three-month period, compared with a 3 per cent decrease in the second quarter, Xun said.

“Loose liquidity and an improvement in fundamentals will continue to drive up stocks,” he said. China’s yuan-denominated “A shares will be more attractive than gold going forward”.

Gold has been on a roll this year, beating every major asset class from stocks to bonds, following the release of unprecedented liquidity by central banks globally aimed at staving off an economic recession, as well as rising demand for safe-haven assets amid escalating tensions between China and the United States. The Shanghai Composite, however, has also been the best performer among the world’s primary equity benchmarks in 2020.

On Monday, gold futures added 0.6 per cent to US$2,022.80 in Asian trading hours, stabilising from a 2 per cent decline in the previous session. The Shanghai Composite rose 0.8 per cent to 3,379.25 for the day.