SHANGHAI, CHINA – MARCH 7, 2023 – The Oriental Pearl Tower, Shanghai Tower, Jinmao Tower and World Financial Center are seen on Lujiazui Street in Shanghai, China on March 7, 2023.
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Analysts expected Chinese stocks to continue rising even after the mainland market reopens after Golden Week.
China’s CSI300 blue chip index rose more than 25% in a nine-day winning streak following the Chinese government’s economic support announcement last week. On Monday, before markets closed for a week-long holiday, stocks rose more than 8% to a 16-year high, with the Shanghai Composite Index up 8.06%.
Hong Kong stocks then fell on Thursday, ending a six-day winning streak and raising concerns that China’s stimulus recovery was starting to stall.
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Shanghai Composite Index
Now, the question for investors is how long the bull market will last.
Eugene Xiao, head of China equity strategy at Macquarie Capital, said the market could continue for a long time in China even after mainland markets reopen next Tuesday, adding that Thursday’s decline in Hong Kong prices was “It’s short-term profit-taking.” The day before “Surge”.
He said the bull market is likely to be prolonged due to the Chinese government’s recent economic stimulus measures and increased participation from retail investors.
Shehzad Kazi, chief operating officer of China Beige Book International, said the rally could even continue until the end of the year.
But Qazi said China faces the risk of an “ugly reversal of sentiment heading into 2025” if markets are disappointed with the effectiveness of the stimulus, which in my view addresses China’s structural economic problems. said there is not enough to do so.
Investors expect the stimulus package to deliver “massive growth” to the economy in the coming months, Kazi added, adding that investor enthusiasm will dampen if the package only results in “modest gains”. .
“There’s still one to three weeks left for Chinese stocks to continue rising,” said Sean Lane, founder of China Market Research. Still, it’s not unusual for prices to fall as “investors exit positions to take a win,” Lane said. Given that the rally was primarily driven by sentiment, we are likely to see more volatility going forward as “no one wants to be last in, but no one wants to be last out.”
Ting Lu, Nomura’s chief China economist, said in a Thursday note that more retail investors are being encouraged to participate in trades “for fear of missing out on a once-in-a-lifetime bull market.” said.
Focus on fiscal stimulus
Also boosting sentiment is growing expectations that the Chinese government will roll out further fiscal and other support measures to shore up the economy. Despite reports of such plans, the Treasury has yet to announce any major policies to support growth.
“The size and content of final fiscal policy could be highly impromptu and uncertain,” Nomura’s Lu said in a report, adding that amid the recent market frenzy, investors are He added that a more sober evaluation should be conducted.
Macquarie Capital’s Hsiao said stock market gains could be derailed if the central government’s fiscal stimulus package falls short of expectations. He said other events that could shorten the bull market include “better-than-expected U.S. jobs numbers, hints at a smaller Fed rate cut and a Trump victory in November.” Ta.
China is suffering from looming deflationary pressures due to a long-term real estate recession and declining domestic consumer confidence. A number of economic indicators in recent months have been weaker than expected, raising concerns among economists that the world’s second-largest economy will miss its 5% growth target for the year.
We haven’t yet moved into a world where finances are the main driver, and that’s what we really want.
alexander kasley
Investment Strategist, APAC, Russell Investment
The People’s Bank of China last week moved to reduce the amount of cash banks must hold on hand, known as the reserve requirement ratio (RRR), by 0.5 percentage points. The central bank also lowered the base rate for seven-day reverse repurchase agreements by 20 basis points to 1.5%.
Billie Leung, investment strategist at Global There is a possibility that we will see it.”
Alexander Kasley, Asia Pacific investment strategist at Russell Investments, said on CNBC’s “Street Signs Asia” that there was a slight lack of specific policies. “What do we really want?” he said.
“My concern, and I think most people at Russell are concerned, is that we are still in this period where Chinese authorities are responding to the weakening data and the situation is starting to improve little by little. It’s about real follow-through,” Kasley said.
