Chinese investors remain nervous ahead of October’s Communist Party Congress, a twice-a-decade meeting where Chinese government officials often lay out plans for future policy initiatives. Some investors are hoping for additional stimulus measures to emerge from the meeting.
China’s Shanghai Composite ($CHSC) fell to a 3-3/4 month low today, and Hong Kong’s Hang Seng Index ($HSI) tumbled to a more than 10-year low.
Societe Generale SA said even though Chinese equities are at levels of “peak pessimism” ahead of the Communist Party Congress in October, now “is not the time to capitulate” on Chinese stocks. “While there is no certainty that China’s zero-Covid policy will be relaxed, we expect to see a more forceful policy response to China’s housing crisis.” A more forceful response to the property slump could trigger a recovery for Chinese stocks from distressed levels.
Morgan Stanley sees a potential technical rebound for Chinese A-shares, saying investor sentiment for China A-shares has reached a new year-to-date low in the past week as trading volume declined further and the earnings revision trend continued to worsen. The sentiment deterioration is “driven largely by ongoing Covid outbreaks, rising political uncertainties, and relatively quiet policy direction ahead of the Party Congress.”
Hong Kong’s Hang Seng Index has lost more than -22% so far this year, and China’s Shanghai Composite has dropped more than -15%. The losses in Chinese stocks are particularly unnerving in a year when China holds its twice-a-decade Communist Party Congress, an event that has typically boosted Chinese stocks in the past. Moreover, Chinese equities remain at depressed levels despite government actions to revive economic growth. The Peoples Bank of China (PBOC) has lowered its key policy rate twice this year, and authorities have stepped up fiscal stimulus and loosened home purchase restrictions in some cities in an attempt to stem the property market slump.
Economists have been cutting their forecasts for China’s economic growth next year. Goldman Sachs Thursday cut its view for China’s 2023 GDP to 4.5% from 5.3%, and Nomura Holdings today cut its China 2023 GDP forecast to 4.3% from a previous forecast of 5.1%. Despite the valuation of Hong Kong’s Hang Seng Index falling to the lowest level since Bloomberg data began in 1993, Straits Investment Holdings said “it is not time to buy yet, with aggressive U.S. interest rate hikes adding to pessimism around Covid Zero and the ongoing property crisis in China.”
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