China bulls say it is time to add to mainland stock bets with easing geopolitical tensions and stimulus measures to boost sentiment

Chinese stocks have fallen out of favour since the reopening play - which saw gains between October last year to January - lost steam

Policy easing measures and signs of a stabilisation in geopolitical tensions will be key catalysts to shore up sentiment, some analysts say

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Bullish China strategists say mainland stocks set for a rebound. Photo: Reuters

Published: 8:45pm, 26 May 2023

Beaten-down onshore Chinese stocks are attracting some bullish calls, with strategists from Morgan Stanley, Daiwa and BCA Research saying an intense sell-off could be coming to an end, with the market ripe for a rebound on further stimulus measures and improving geopolitical ties.

Patrick Pan, China equity strategist at Daiwa Capital Markets Hong Kong, wrote in a note to clients on Friday that investors have been trading on China’s weak recovery story since February, and concerns over economic fundamentals and geopolitical tensions are mostly priced in.

“We see the coming June as the second best time of the year to accumulate China equities,” said Pan, provided there are no large Covid-19 outbreaks or a US debt default.

Chinese stocks have fallen out of favour since the reopening play - which saw gains between October last year to January - lost steam. The CSI 300 Index, which tracks the largest onshore-listed companies, has dropped 8.4 per cent since a January peak to surrender early year gains, wiping out over US$1 trillion in value.

Bulls have been pulling money out of the nation’s market to bet on other markets in the region. Foreign investors sold over 17.8 billion yuan (US$2.5 billion) worth of A shares this week, according to Stock Connect data. That has made them net sellers of mainland stocks by US$1.5 billion so far in the second quarter, compared with US$27 billion of net buys during the first three months of the year.

“With regards to mainland China exposure, it is back to where we were in October 2022,” Herald van der Linde, head of equity strategy at HSBC, said in a research note on Thursday. Global funds are now “significantly underweight” on mainland China, while Asia funds have moved to a small underweight position as well, he wrote.