(Bloomberg) – The global rally in Chinese stocks has failed to convince many global fund managers and strategists.
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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 have soared since late September as a series of economic, financial and market support measures reinvigorated investor confidence and prompted Goldman Sachs Group Inc. and others to upgrade the country's stocks to overweight. are. The Hang Seng China Enterprise Index, made up of Chinese stocks listed in Hong Kong, has risen more than 35% in the past month, making it the best performer among more than 90 global stock indexes tracked by Bloomberg. However, there are also concerns that it is too expensive, too far, and too fast.
“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.
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. China's National Development and Reform Commission will hold a press conference on Tuesday to discuss the implementation of the phased economic policy package.
While there is plenty of optimism that could support a sustainable stock rally, there have been several false dawns in the past, most recently a complete reversal of February's rally.
Invesco's Ma, who has been one of a relatively small number of China bulls this year, said he was in no rush to increase his investment now.
“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.”
A sharp rally over the past two weeks has reaffirmed Chinese stocks' influence over broader emerging market indicators, hurting the performance of fund managers who had underweight positions in the largest developing economies. Ta. 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.
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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.”
goldman positive
Some predict further gains.
Goldman Sachs Group Inc. raised its call on Chinese stocks to overweight, saying its index tracking Chinese stocks could rise another 15-20% if authorities implement policy measures.
The Chinese government's recent stimulus announcements have made markets “more concerned that policymakers will do enough to contain left-wing growth risks,” including Tim Mo. the strategists wrote in an Oct. 5 memo.
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.
what to see
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China releases foreign exchange reserve data for September
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Many countries release inflation statistics including Thailand, Brazil, Mexico, Chile and Argentina
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Central banks of India, Peru and South Korea announce interest rate decisions
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Mexico and India release industrial production statistics
–With assistance from Shulun Huang and Carolina Wilson.
(Updated to add comment from Goldman in third paragraph.)
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