HomeMost PopularThe Resilience of Chinese Stock Markets Amidst Fiscal Restraint

The Resilience of Chinese Stock Markets Amidst Fiscal Restraint

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By Ankur Banerjee and Tom Westbrook

SINGAPORE, March 5 (Reuters)Foreign investors are cautiously dipping their toes back into the waters of China’s stock markets, driven not by an expected fiscal stimulus but by the allure of bargain prices.

Since China revamped its stock market regulator and implemented stricter rules against speculation, investors seeking undervalued assets have begun reentering the mainland stock arena, witnessing a fragile yet notable recovery in the market.

Awaiting a Fiscal Surge

Hopeful eyes turned towards China’s National People’s Congress (NPC), anticipating a robust injection of funds to galvanize the markets and uplift the prevailing pessimism. However, the authorities chose a different narrative, highlighting risk management in the property sector and municipal debt, and emphasizing “worry-free consumption” over aggressive spending.

With a planned budget deficit of 3% of economic output, down from 3.8% the previous year, the anticipated financial boost fell short of expectations, leaving investors yearning for policies that could enhance governance and bolster final demand.

“Investors are craving strategies that promote governance and stoke consumer demand, but unfortunately, such initiatives seem absent from the NPC discussions so far,” observed Ken Peng, Citi Global Wealth’s head of investment strategy in Asia.

Despite fiscal modesty, mainland equities held steady on Tuesday, supported by indications of state-incited buying. Conversely, Hong Kong’s Hang Seng .HSI exhibited a 2.6% decline, while the yuan CNY=CFXS maintained its stability.

Rebuilding Momentum

China’s stock markets experienced a tumultuous period, shedding approximately $2 trillion in market value throughout the year ending on January 31. Foreign investors, contributing to a net selling of 112 billion yuan ($15.6 billion), significantly reduced their exposure to Chinese equities.

However, a reversal is evident as these investors have opted to purchase stocks worth 48.3 billion yuan, resulting in a nearly 15% revival for China’s blue-chip CSI300 Index from its recent five-year nadir.

While previously comfortable parking substantial portions of their portfolios in China for extended durations, numerous global investors have pivoted towards compact and agile “tactical” portfolios, relishing short-term market rebounds while exercising caution in establishing significant long-term positions.

Strategic Selectivity

Amidst this nuanced landscape, both foreign and domestic investors are selectively cherry-picking stocks, favoring sectors such as electric vehicles and technology—the cornerstone of China’s self-sufficiency drive.

The mainland markets’ appeal extends beyond sectoral preferences, with the 12-month forward price-to-earnings ratio for the CSI 300 resting at a mere 10, half the valuation levels of the S&P 500 .SPX and Japan’s Nikkei .N225.

Although short-term positives like the year-long consumer goods trade-in program are driving market sentiment, coupled with the market’s affordability and limited foreign investor involvement, Aninda Mitra of BNY Mellon Investment Management remains cautiously optimistic, preferring to stay structurally underweight in China.

Finding Solid Ground

Experts opine that the recent market actions have at least stemmed the bleeding, providing a glimmer of hope for a resurgence. Steve Lawrence, chief investment officer at Balfour Capital, managing a $300 million portfolio across diverse funds, perceives a renewed inflow of funds into Chinese equities.

“In times of fear, the true investors, the astute investors, always seize opportunities. Despite current apprehensions, China’s growth trajectory remains intact,” imparted Lawrence, hinting at an impending market reversal akin to a momentous biblical event, symbolizing the tug-of-war between soaring Nasdaq highs and the beleaguered Hang Seng.

($1=7.1982 yuan)

(Reporting by Ankur Banerjee and Tom Westbrook; Additional reporting by Samuel Shen and Summer Zhen; Writing by Vidya Ranganathan; Editing by Clarence Fernandez)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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