Chinese Stock Market Outlook

Investing.com — Chinese stocks are unlikely to see a sharp rebound in the near-term, according to Alpine Macro analysts. This warning stems from growing concerns about a sluggish growth outlook and inadequate policy support from Beijing.

The investment research firm described China’s economy as experiencing a “slow-motion implosion,” with soft private spending, and a lack of immediate action from policymakers exacerbating this trend.

Recent sessions saw the Shanghai Shenzhen CSI 300 and Shanghai Composite indexes sinking to their lowest levels in over six months, driven by persistent slowdown concerns. Chinese stock markets have struggled to keep pace with their Asian peers as foreign investors grow cautious about the country.

Alpine Macro analysts noted, “The overall stock market appears to be bouncing around a broad bottom, but a major breakout is unlikely unless the government starts a large-scale stimulus program, which does not seem to be in the cards.”

The firm flagged a “disturbing” decline in money and credit figures, indicating weak private and business spending. They highlighted that policymakers have been downplaying warning signals, and recent government bond issuances to address funding shortfalls have not been adequate.

Furthermore, it is now almost impossible for Beijing to meet its 5% GDP growth target for 2024. Analyses suggest that contractions in monetary aggregates may predict significant economic deceleration going forward. In the second quarter, China’s economy grew less than expected, falling short of the government’s 5% target as private spending lagged, amid persisting deflation.

Alpine Macro compared China’s slowdown to the stagnation witnessed in the Japanese economy since the early 1990s, a scenario Japan is still trying to emerge from. They noted that Beijing appears to be repeating errors made by Japan, where the government delayed counter-cyclical measures.

Regarding Chinese stocks, Alpine Macro plans to maintain its long positions, as decreasing interest rates might support local markets. However, the firm cautioned there would be “no case for a sustained bull market” unless drastic government measures are implemented.

Despite the bleak outlook, the firm indicated that Chinese value stocks could outperform even as growth deteriorates, recommending a defensive stance for Chinese portfolios.