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https://scmp.com/business/china-business/article/3201261/citic-cicc-and-haitongs-calls-sustained-china-stock-market-rebound-fail-enthuse-investors-amid
Business/ China Business

Citic, CICC and Haitong’s calls for a sustained China stock market rebound fail to enthuse investors amid unrest

  • While brokerages expect the fine-tuning of Covid restrictions to provide momentum, traders are reluctant to make further bets after an initial bout of excitement
  • A CSI 300 sub-gauge of consumer-discretionaries and staples has dropped at least 2.5 per cent since November 11, when pandemic-control guidelines were announced
Some stock trades betting on the China reopening theme have lost traction amid a flare-up in Covid-19 cases across the country. Photo: Reuters

The calls by China’s biggest brokerages for a sustained stock market rebound remain unconvincing, at least for now.

While Citic Securities, China International Capital Corp (CICC), Haitong Securities and other major brokers say that the bounce-back spurred by fine-tuning of Covid restrictions still has momentum, traders are reluctant to make further bets on the reopening theme after an initial flurry of excitement.

A CSI 300 sub-gauge of onshore consumer-discretionary and staples stocks has dropped at least 2.5 per cent since November 11, when China unveiled a 20-point set of guidelines to loosen pandemic controls, making it one the worst performers of the 10 industrial groups on the index. Utility stocks have risen more than 5 per cent in the span, making them the biggest gainers.

That is a far cry from an earlier prediction that China’s consumer stocks, ranging from liquor distillers to duty-free store operators and travel agencies, would be the biggest beneficiaries of the country’s reopening as it would boost pent-up consumer demand.

The divergence underscores investors’ fears that China’s eventual exit from zero-Covid will be bumpy and later than expected.

The recent wave of infections has heightened fears that the lockdowns imposed by local governments will continue to inflict damage to the economy, while the protests in some of the biggest cities on the mainland have also stoked concerns about social unrest.

“Social discontent could increase in China over the coming months, testing policymakers’ resolve to stick to the zero-Covid mandate,” said Stephen Innes, a managing partner at SPI Asset Management in Bangkok. “Accelerating reopening plans when new Covid cases are rising is unlikely, given the low vaccination coverage of the elderly.”

While prospects remains challenging in the near term, major brokerages are sticking to their calls that stocks will rise over a longer horizon, citing ample liquidity, attractive valuations and ongoing, gradual relaxation of pandemic curbs.

CICC said it was positive on stocks over the next 12 months, with the market exhibiting some characteristics of a bottom, while Citic Securities argued that the big trend of easing Covid restrictions remains intact.

Guotai Junan Securities recommended buying the dip, predicting policy support will gain traction.

“This round of economic recovery will be rocky and there will even be downside pressure on growth through the first quarter of next year,” said Guotai Junan Securities in a research note on Monday. “But it’s no longer a one-way down market now. Stocks will trend up after some back and forth.”