The market is likely to remain volatile and rangebound going into 2024 due to the lack of strong catalysts and long term investors are unlikely to return in a hurry as there is no clarity about China’s intention to address the challenges and spur future growth, they said.
“The overall sense is that the economy faces greater downside risks,” Caroline Yu Maurer, head of China and Hong Kong equities at HSBC Asset Management, said in an interview. The entire market’s valuation is in a free fall, and if a company cannot deliver strong earnings during this cycle, stocks will be hit very hard, she added.
“It is still in the process of finding a bottom, and we do not know which point is the lowest point,” Maurer said.
Meanwhile the MSCI China index which tracks over 700 Chinese companies listed on domestic exchanges has lost 11.7 per cent so far this year, and is on course for a third year of decline, the longest losing streak in over 20 years.
Fidelity, Invesco prep for revival in China’s beaten-up markets
Fidelity, Invesco prep for revival in China’s beaten-up markets
“This is a bear that people do not want to touch,” Wendy Liu, chief China equity strategist at JPMorgan Securities Asia, said during a media briefing on Thursday. “For China, things could get worse before getting better, regarding local government debt issues, bank’s non-performing loans and private sector confidence.”
Policy support from Beijing has appeared to be more forceful in recent weeks, with the authority trying to overturn the “three red lines” and urging banks to provide more financial support to the troubled developers. The Chinese yuan is also recovering from a 16-year low on stronger fixings and seasonal factors.
But HSBC’s Maurer cautioned that stimulus relief may not be effective. “Forceful stimulus by the government does not make much sense if the fundamentals aren’t there.” The role policies can play is mainly to prevent major financial risks and in the end you still need the economy to naturally find a bottom, she said.
“We have confidence that the recovery is happening,” said Hayden Briscoe, head of UBS Asset Management Hong Kong. “It’s just taking longer to recover in this cycle, but the robustness of the growth is going to be a lot stronger and it’s going to last for longer.”
Structural opportunities still exist in the rangebound markets despite macro challenges, JPMorgan’s Liu said. Exporters that are able to expand overseas, niche market leaders in non-cyclical sectors like gaming, and major home market players could outperform against the economic headwinds and deliver returns to investors, she added.
Maurer also said things might not get much worse from this point onwards, but investors should gear up for another year of volatility with consistent ups and downs.
“We can only wait for this cycle to pass, but we do not really know when that will happen,” she said.