Chinese stock outlook hammered by property crisis, US investment curbs and economic data amid stimulus ‘lip service’
- The CSI 300 Index of the biggest onshore companies slid 3.4 per cent last week as investors sold US$3.6 billion in mainland stocks
- ‘The China market is in a difficult spot,’ says a Hong Kong-based fund manager at Matthews Asia. ‘I can only say the downside is limited.’
“The China market is in a difficult spot,” said Sherwood Zhang, a Hong Kong-based fund manager at Matthews Asia. “I can only say the downside is limited.”
Global investors made a quick retreat by selling 26 billion yuan (US$3.6 billion) worth of mainland stocks last week, with the outflow on Friday alone topping 12.3 billion yuan, the most since October, Stock Connect data showed.
“Rising stresses in China property raise concerns on broader property sector risks,” analysts at Goldman Sachs including Kenneth Ho wrote in a note to clients on Friday. Stabilising the property sector will need further policies to stimulate demand and improve consumer sentiment, as well as more liquidity measures, he wrote.
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“Our expectations on the stimulus are quite low given various challenges,” said Jiang Zhang, head of equities at First Plus Asset Management in Singapore. “Beijing is faced with lack of funding due to unwillingness to increase leverage, and the old tactic of propping up the property sector is unlikely to have the desired effect.”
Beijing’s pro-growth pledges so far have been “lip service”, said Matthews Asia’s Zhang.
“I think the government is not in panic mode, definitely not in crisis mode,” he said. Investors need to see concrete action and make sure the government is committed to economic growth itself rather than other political goals, before they can comfortably rebuild their positions, he added.
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Still, market bulls say the economic recovery remains on track, and investors should be more patient and selective in picking stocks before confidence recovers.
“I believe we should focus on a bottom-up approach to find the most attractive stock ideas in China, which are less impacted by the overall weak macro backdrop, instead of a top-down approach,” said Vivian Lin Thurston, a portfolio manager at William Blair.
Corporate earnings could have a significant bearing on near-term market returns amid all the pessimistic signs pointing to weak fundamentals, according to Goldman Sachs. The second quarter profit growth expectation for MSCI China constituents could be around 11 per cent, on track to meet the full-year consensus growth forecast of 17 per cent, the US bank wrote in a note to clients last week.
“You can still find interesting companies that continue to report strong earnings,” said Matthews Asia’s Zhang. “I think investors won’t be able to afford completely moving out of China.”