Chinese Stocks Expected to Rise by at Least 10% as Authorities Signal Support Efforts
Chinese stocks are predicted to experience a significant surge of at least 10% in the coming days, as authorities in China indicate their commitment to supporting the market. Marko Papic, partner and chief strategist at Clocktower Group, believes that recent signals from the Chinese government point towards a concerted effort to bolster investor confidence. Papic specifically referenced a Bloomberg report stating that Chinese President Xi Jinping was scheduled to receive a briefing from financial regulators regarding the recent stock market sell-off. While the meeting may have already taken place, the report suggests that it could have occurred as early as Tuesday.
To reinforce investor confidence, the Chinese securities regulator has issued several public statements in recent days, including announcements of state-backed purchases. Papic argues that if the Chinese government is willing to take action to stabilize the stock market, it would be logical for them to also focus on stabilizing the overall macro economy. Despite refraining from large-scale stimulus measures thus far, China is facing tensions with the United States, a slower-than-expected recovery from the pandemic, and a decline in the real estate market, all of which have contributed to record-low consumer sentiment.
Following gains on Tuesday, mainland Chinese stocks traded mostly higher on Wednesday. The Shanghai composite had reached a five-year low on Monday, but Papic believes that investor sentiment may have hit bottom. He anticipates a potential rally of 10% to 15% in Chinese equities in the coming trading days and suggests that tactical plays to “bottom fish” may be a wise move. This represents a shift in Clocktower’s previous view, as last week they advised investors to refrain from bottom fishing.
Papic admits that he has been bearish on Chinese stocks for the past year and acknowledges that the current rally could be a dead cat bounce—a brief recovery followed by a continuation of the downtrend. However, he believes that the Chinese government’s willingness to support stocks and the economy through fiscal policy is a positive step in the right direction. Clocktower, an alternative asset management platform that helps deploy foreign capital into China, shares this sentiment.
Despite the potential for a rally, Chinese stocks remain down for the year, following a challenging 2023 marked by losses. Papic attributes part of this year’s market sell-off to a mid-January meeting where Xi and other top Chinese officials indicated that Beijing would focus its anti-corruption efforts on the financial sector. The extent to which Chinese authorities are able and willing to act remains uncertain.
Jeremy Stevens, an Asia economist at Standard Bank, cautions that similar interventions in 2015 did not achieve their intended goals. That year, mainland Chinese stocks experienced a significant plunge from which they have yet to fully recover. Stevens reminds us of the drastic four-day downturn in August 2015, which sparked fears that the government might retract its market support strategies.
Looking ahead, Stevens notes that China’s economic growth is expected to continue sliding without the supportive base effects of the previous year. Market participants will closely watch as policymakers set a growth target and policy focus at the National People’s Congress in March.
As mainland Chinese stock markets prepare to close for the weeklong Lunar New Year holiday, reopening on Monday, February 18, and the Hong Kong stock exchange closing on February 12 and 13, investors eagerly await further details on the Chinese government’s plans to support the stock market and stabilize the economy.
