After bad news for Chinese stocks and yuan, a market turnaround is not far away for UBS as data improves

China’s equity market ‘may have bottomed out,’ UBS strategist Wang says, citing historical signals

Prices rebounded 8 per cent on average three months after large or excessive selling in the onshore stock market in the past: UBS

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China’s stock market slump may have run its course, UBS says. Photo: Shutterstock Images

Published: 3:00pm, 20 Sep 2023

Investors should be more optimistic about China’s market outlook because Beijing’s efforts to stimulate the economy are producing results, while technical signals suggest the stock slump since the start of the year is almost over, according to UBS Investment Bank.

“We see several signs which historically would have suggested that the equity market may have bottomed out,” James Wang, head of China strategy based in Hong Kong, said in a report. “We see reasons for more optimism.”

UBS said economic fundamentals have improved, citing manufacturing and credit impulse. Measures to boost home sales, trim equity trading costs and cut personal income tax have exceeded investor expectations while increased talk between state officials have helped ease geopolitical tensions, he added.

An electronic board shows stock indexes in Shanghai in March 2023. Photo: Reuters

The CSI 300 Index tracking the nation’s largest companies listed in Shanghai and Shenzhen has slipped 1.5 per cent this month and 4.1 per cent this year, approaching an 11-month low. Foreign funds sold US$2.1 billion of Chinese stocks last week, taking the six-week outflows to a record US$15 billion, according to Goldman Sachs.

Elsewhere, capital outflows from China’s financial markets amounted to a combined US$68 billion in July and August, abetting the yuan’s slump to a 16-year low against the US dollar.

Historically, Chinese stocks returned 8 per cent on average three months after such large equity outflows, Wang said. The yuan weakness, a surge on Chinese government bond yields, and dwindling turnover in the A-share market suggest the bad news could have been exhausted.