Stocks are a ‘falling knife’ without fundamental changes in China policy, regulatory and geopolitical risks, Natixis says
- Hang Seng Index logged a 3.9 per cent gain this week, the most in 14 months on tech rebound
- Investors may be catching a falling knife as tech crackdown, distress among mainland developers and poor US-China ties are still playing out
Analysts led by Hong Kong-based Alicia Garcia Herrero and Gary Ng said the gloomy picture on local equities could persist in the first half, even as rival investment banks and global funds including Goldman Sachs and BlackRock have turned more positive on the outlook for Chinese stocks traded in the mainland and offshore markets.
“Hong Kong’s equity market can still get worse before it gets better unless we see major changes in the current policy risk factors,” they said in a report to clients on Tuesday. “Investors have been busy rewriting the growth story of different sectors under the new regulatory normal, but the process is still on the way.”
The Hang Seng Index advanced 3.9 per cent this week, the biggest gain in 14 months, following a rebound in Chinese tech stocks on valuations appeal, recouping more than US$200 billion in market value. The benchmark slumped 14 per cent in 2021, the worst performance among major global stock indices.
China eased liquidity and borrowing costs last month and has pledged to prioritise efforts to stabilise growth since the economy lost momentum from mid-2021. Companies have also stepped up stock buy-backs to shore up prices, according to Bloomberg data.
Yet, fundamental changes in the Chinese technology and property sectors and geopolitical tensions between the US and China are needed as evidence before any sustained turnaround.