Up or down? Prospects for China’s stocks are split in the second half as analysts dither over policies, inflation and yuan

The outlook for China’s equities are uncertain in the second half, as securities analysts and strategists are divided on how stock prices will be affected by a range of factors from macroeconomic policies to the pace of inflation and the value of the yuan against major currencies.

Citic Securities, the largest Chinese brokerage and owner of the CLSA Asia franchise, is the most bullish among those that have published reports of the second-half strategic outlook, predicting that China’s stocks will rise with accelerating vaccinations, accommodative monetary policies and the strengthening of the local currency.

The US Federal Reserve is “unlikely to taper the bond purchase this year and China’s monetary policy will remain neutrally stable, with no adjustment in interest rates,” Citic’s analysts led by Qin Peijing wrote, predicting that gains in stock prices will pick up speed in the fourth quarter. “China’s stocks are still attractive in allocations.”

The cloudy outlook comes as the world’s second largest capital market stands at the cross roads, with pockets of Covid-19 outbreak in several cities and provinces threatening to undo the nation’s success in beating back and containing the disease.

The CSI300, the only benchmark covering 300 of the largest stocks on the Shanghai and Shenzhen exchanges, is 10.2 per cent off its February 10 peak. Both the Shanghai and Shenzhen Composite Indexes are trading 3.4 per cent weaker from their February 19 peaks.

CSC Financial, Huaxi Securities and Orient Securities are less upbeat, saying that concerns about rising US bond yields, lingering inflation and slowing earnings growth will compound the uncertainty in equities.