Chinese stocks have history backing to end pain with Daiwa, BNP Paribas banking on final-quarter market surprises

China’s biggest stocks have often rallied in the final quarter of the year over the past 13 years, raising hopes for a halt to the 23 per cent rout so far this year

The market could be boosted by possible surprises after the Communist Party concludes its 20th congress this month, Daiwa analyst says

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A man walks past the large screen showing latest stock and currency exchange data in Shanghai on September 29. Photo: EPA-EFE

Published: 7:33am, 3 Oct 2022

Investors who have fretted about the slump in Chinese stocks so far this year, could be in for a surprise in the final quarter, with history in the past 13 years on their side, as a tweak to China’s controversial zero-Covid policy could come sooner than expected.

The CSI 300 Index of the biggest onshore Chinese stocks has risen in the final three months in 10 of the past 13 years, according to Bloomberg data. Even in the worst pandemic year in 2020, the benchmark surged by 14 per cent in this period, the best final three-month since 2015.

This quarter might deliver the boost for a downtrodden market, according to Daiwa Capital Markets strategist Patrick Pan. The catalysts might come from possible surprises after the Communist Party concludes its 20th congress later this month. If so, they could add urgency to an underwhelming mix of stimulus and calls for changes to China’s zero-Covid policy.

“China’s stock market usually outperforms in the second half of the year,” Pan said, as the fourth quarter is the high season for infrastructure investments and home sales. In the current downturn, the market is now anticipating more bailout measures, especially in the property and financial sectors, he added.

The CSI 300 has declined 23 per cent so far this year and is set for its worst January-to-September performance since a 55 per cent slump during the global financial crisis in 2008. The yuan has weakened 11 per cent to a record-low against the US dollar. China’s financial markets will close for all of next week for the country’s national day holiday.

“It is highly unlikely that China will abandon its zero-Covid policy in one fell swoop,” China strategists at Montreal-based BCA said in a September 30 report. “That said, some easing in lockdown measures is likely by early next year, which is sooner than most investors expect.”