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Chinese equities can soar even with a property crisis on, spot-on stock picker says
- ‘The rally in April and May could be a prelude of what is to come,’ says Hong Hao, who correctly called 2022 reopening rally, 2015 meltdown
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Chinese stocks do not need a turnaround in property prices to chalk up further gains despite an entrenched bearish consensus that says they do, according to a top market strategist who called the timing of the reopening rally in late 2022 and the 2015 stock-market meltdown.
Cheaper property prices could boost household spending power and savings, potentially redirecting funds into the stock market once domestic confidence improves, according to Hong Hao, partner and chief economist in Hong Kong at Grow Investment Group, a Chinese hedge fund.
“The rally in April and May could be a prelude of what is to come,” he said in a note to clients on Monday. “Chinese stocks can rebound without a rebound in property.”
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The Hang Seng Index, which tracks the largest and most liquid stocks listed in Hong Kong, surged 21 per cent between a low on April 19 and a high on May 20 as mainland and global investors scooped up cheap local shares in an effort to diversify their assets.
That happened despite the property market showing little sign of stabilising, with prices of new homes in 70 medium and large Chinese cities falling by the most in nearly 10 years as Beijing’s ambitious 300 billion yuan (US$41.3 billion) relending facility for excess housing inventory has yet to trickle through.
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“The more property prices decline, potentially the bigger the household spending budget will be, and hence better discretionary spending,” Hong said. That could help ease the deflationary pressure and prompt the economic cycle to tick up, he added.
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