There’s a good chance Chinese stocks will get a post-holiday bounce after worst quarter since 2018

The Shanghai Composite Index traded higher in nine of the past 10 years when trading resumed after the golden week holiday

Market looks to catch up with regional markets, when the MSCI Asia-Pacific Index rose 4.1 per cent during the onshore market pause

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People walk next to a large screen showing stock and currency data in Shanghai on September 29. Photo: EPA-EFE

Published: 7:30am, 10 Oct 2022Updated: 7:56am, 10 Oct 2022

Chinese stocks are likely to return to their winning ways when trading resumes after the National Day holiday. Market history in the decade since President Xi Jinping rose to power suggests that it is more likely to happen than not. The caveat: it may be short-lived.

The Shanghai Composite Index climbed in the days immediately after the week-long shutdown in nine of the past 10 years, according to Bloomberg data. This time, the onshore market may catch-up with gains in the past week, when the MSCI Asia-Pacific Index advanced by 4.1 per cent while onshore trading paused.

After a recovery in factory activity last month, data this week appears to be market-friendly. Total financing and new yuan-based loans likely surged in September, economists forecast, an upbeat backdrop before the Communist Party kicks off its Congress from October 16.

“There is little doubt the market has become extremely depressed,” said Yan Wang, China strategist at Montreal-based Alpine Macro, a research firm. “The challenge to the bullish thesis is that the [credibility] of Chinese policymakers, once widely perceived as visionary, technocratic and pragmatic, has suffered a massive blow in the past year.”

The Shanghai stock benchmark slumped in the past three months for a total loss of 11 per cent, the most painful quarter since December 2018. The index, which tracks almost 2,000 listed companies, suffered a 3.9 trillion yuan (US$548 billion) rout in market value, snowballing the losses to 5.5 trillion yuan in 2022.

Some of the nation’s biggest funds are keeping an upbeat view on the market outlook, according to a report published by state-run Securities Times on October 6. China’s economy has seen the worst in this cycle, and investors should not be too pessimistic, the report said, citing money managers.