The global rise in Chinese stocks has failed to convince many global fund managers and strategists.
Invesco, JPMorgan Asset Management, HSBC Global Private Banking & Wealth, Nomura Holdings and others are skeptical of the recent economic recovery and believe the Chinese government will back up its stimulus promises with real money. Waiting for. Some are concerned that many stocks have already reached overvalued levels.
Chinese stocks then soared Late September A series of economic, financial and market support measures reinvigorated investor confidence. The Hang Seng China Enterprise Index, made up of Chinese stocks listed in Hong Kong, has risen more than 30% in the past month, making it the best performer among more than 90 global stock indexes tracked by Bloomberg.
“Sentiment may overshoot in the short term, but people will return to fundamentals,” said Raymond Ma, Invesco’s chief investment officer for Hong Kong and mainland China. “This rally has made some stocks very overvalued,” he said, adding that they lack a clear value proposition based on expected earnings performance.
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The stimulus package announced by the Chinese government includes lower interest rates, freeing up cash for banks, billions of dollars in liquidity support for stocks and a pledge to halt a prolonged decline in real estate prices. While there was a lot of optimism that could support sustainable share price gains, there were also some circumstances. false dawn Previously, and most recently, February’s rally has been completely undone.
excitement of the past two weeks Chinese stocks reaffirmed their influence on broader emerging market indicators, underperforming fund managers with underweight positions in the largest developing economies. The sustainability of the rebound will not only be important for the year-end performance of index-tracking funds, but will also have a direct impact on countries with trade and investment ties to China.
Invesco’s Ma was in a relative minority. chinese bull Even this year, he said he is in no hurry to increase investment just yet.
“There’s a group of stocks whose prices are up 30-40%, almost reaching historic highs,” he said. “It’s more uncertain to me whether the fundamentals will be as good over the next 12 months as they were before the peak. That would be the category we want to cut.”
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JPMorgan Asset Management is similarly cautious.
“Additional policy measures will be needed to boost economic activity and confidence,” said Tai Hui, chief market strategist for Asia Pacific in Hong Kong. “Policies announced so far may help smooth the deleveraging process, but balance sheet repair will still need to take place.”
Hui also pointed to global uncertainties that could dampen early stock gains.
“With the U.S. presidential election less than a month away, many investors will argue that there is bipartisan agreement in the U.S. view of China as an economic and geopolitical rival,” he said. . Additionally, “foreign investors may choose to wait until economic data bottoms out and this new policy is solidified,” he said.
slowing growth
HSBC Global Private Banking remains concerned that the measures taken by China are not enough to reverse the country’s long-term growth outlook.
“We need to maintain the momentum of the economic recovery and boost growth to achieve the 5% gross domestic product (GDP) growth target in 2024,” said Chok Wan Huang, chief investment officer for Asia at a private bank in Hong Kong. “Further significant fiscal easing is still needed.” “Currently, we remain neutral on mainland China and Hong Kong stocks, based on our expectation that China’s GDP growth will slow from 4.9% in 2024 to 4.5% in 2025.”
“Further ahead”
Still, some are bullish on the idea that the stock price has fallen for the first time in three years, making the company’s valuation cheap.
“The rally can continue, but there is still a lot of capital that needs to be rebalanced, especially support from global investors,” Matthew Quaife, global head of multi-asset investment management at Fidelity International in Hong Kong, told Bloomberg TV. spoke.
“We are aware that valuations are still below average and could fall further from a technical perspective. This could have a lot more effect and how much of that is reflected in earnings. “Ruka is a bigger problem,” he said.
potential bust
Nomura Holdings Inc. is one of the most pessimistic companies, warning that its stock price gains could turn around soon. From boom to recession.
In the darkest scenario, “a stock market frenzy would be followed by a crash, similar to what happened in 2015,” Nomura economists led by Hong Kong’s Ting Lu wrote in a note to clients. That outcome could have a “much higher probability” than the more optimistic scenario, they said.
Bond’s “Challenge”
Some investors and strategists are also wary of what the stimulus package could mean for the country’s bonds and currency.
Chinese bonds have fallen since the stock rally began, at least temporarily ending a period of consecutive record low yields as investors bought safe haven assets.
“There are still big challenges to solve and it will not be an easy road,” said Lin Song, chief economist for Greater China at ING Bank in Hong Kong. “We need to ensure that this policy blitz is effective in stabilizing the downward trajectory of the housing market, and not just delivering an influx of hot money into equities.”
Song said bonds could benefit if the stock market cools. “If something goes wrong in the next steps, there is certainly a risk of reverting to last month’s environment.”
Renminbi traders will focus Tuesday on the People’s Bank of China’s daily reference rate, the level at which the yuan is allowed to trade. The onshore yuan has appreciated more than 1% in the past month, moving closer to the key level of 7 yuan to the dollar. If that barrier is breached, it could trigger further increases.
