JPMorgan, HSBC AM say Chinese stock investors should prepare for a long winter

Chinese stock markets are likely to remain volatile and rangebound going into 2024 due to the lack of strong catalysts

Issues around the property sector, local government debt, bank’s non-performing loans and private sector confidence pose economic risks

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Chinese President Xi Jinping, also general secretary of the Communist Party of China (CPC) Central Committee and chairman of the Central Military Commission, inspects the Shanghai Futures Exchange in east China’s Shanghai, Nov. 28, 2023. Photo: Xinhua

Published: 8:00am, 1 Dec 2023Updated: 6:41pm, 5 Dec 2023

Beaten-down Chinese stocks are likely to face a long winter ahead as the ongoing property turmoil poses a risk to the economic recovery, at a time when policy support provides little remedy, analysts and money managers say.

The market is likely to remain volatile and rangebound going into 2024 due to the lack of strong catalysts and long term investors are unlikely to return in a hurry as there is no clarity about China’s intention to address the challenges and spur future growth, they said.

“The overall sense is that the economy faces greater downside risks,” Caroline Yu Maurer, head of China and Hong Kong equities at HSBC Asset Management, said in an interview. She highlighted the adjustments needed to support the new economy while managing the decline in traditional sectors.

The market’s valuation is under pressure, and if a company cannot deliver strong earnings during this cycle, stocks will be hit very hard, she added. The market is still in the process of finding a bottom, “and we do not know which point is the lowest,” she said.

People stand on the street beneath a large screen showing the latest stock exchange and economy data, in Shanghai, China. Photo: EPA-EFE

The Hang Seng Index in Hong Kong and the CSI 300 Index, which tracks the largest Chinese companies listed in Shanghai and Shenzhen have both been on a downtrend since July, wiping out nearly US$1 trillion of valuation from Hong Kong and mainland stock markets.

Meanwhile the MSCI China index which tracks over 700 Chinese companies listed on domestic exchanges has lost 11.7 per cent so far this year, and is on course for a third year of decline, the longest losing streak in over 20 years.

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