Chinese stocks resumed declines Wednesday, underscoring the need for authorities to act quickly for the market to sustain the sharp rebound seen after policymakers’ latest pledges to revive the economy.
(Bloomberg) — Chinese stocks resumed declines Wednesday, underscoring the need for authorities to act quickly for the market to sustain the sharp rebound seen after policymakers’ latest pledges to revive the economy.
The Hang Seng China Enterprises Index, which tracks major Chinese companies listed in Hong Kong, was down 1.2% at the midday break, after surging 5.3% in the previous session. On the mainland, the CSI 300 Index dropped 0.3%. The offshore yuan also swung to a 0.3% loss against the dollar, after gaining 0.7% Tuesday.
A swift follow-through of actionable policy measures, especially those for the property sector, will be key to extending the rally in stocks, Laura Wang, chief China strategist at Morgan Stanley, wrote in a note. An early recovery in sentiment could recede in their absence, she added. That view speaks to the caution seen among investors given that Beijing has repeatedly fallen short of expectations for stronger economic stimulus.
Morgan Stanley reiterated its one-year base-case target of 70 for the MSCI China Index. That implies a potential upside of about 11% from its current level.
Chinese assets from stocks to the yuan and corporate bonds rallied Tuesday on Beijing’s latest signaling of using further property easing and a consumption boost to revive the economy. The enthusiasm emerged after months of entrenched pessimism plagued markets against the backdrop of weakening data and geopolitical tensions.
“More details for solutions for longer-term structural challenges need to follow through in the coming months – this, along with further stabilization in geopolitical uncertainty, is necessary for a more sustainable equity market recovery,” Wang wrote.
Wang pointed to late August or September, as a major Communist Party conference approaches, as a timeframe to anticipate more structural reform plans, centering around state-owned companies and debt-saddled local government financing vehicles.
Chinese stocks have been on a downtrend since the nation’s reopening from Covid curbs sparked a surge of about 50% in the Hang Seng China gauge over three months through January. Investors have sold into intermittent rallies since, showing a lack of conviction in a market that’s headed for another year of losses.
“Looking ahead with a tempered sense of optimism, the pace of economic recovery could be expedited if further targeted policy stimulus is implemented to underpin growth and ensure liquidity,” China Asset Management wrote in a report, adding that it expects sectors such as undervalued property and pan-consumption to be the first to “reap the benefits” of incremental policy support.
“Yet the journey is predicted to be a grinding one, marked by back-and-forth movements.”
–With assistance from Charlotte Yang and Wenjin Lv.
(Updates with stock levels and yuan move)
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