Summary
- Chinese equities have lagged global markets by 37% in the past year
- Weak earnings and price momentum have dampened prospects.
- Chinese equity labelled "uninvestable" raise questions.
- Long-term concerns persist
In the latest macro perspective, we delve into the complexities of the Chinese equity market, which has presented a challenging landscape for investors. Over the past 12 months, Chinese equities have underperformed global markets by a staggering 37%, with a 30% decline in absolute terms. Despite initial optimism surrounding a post-COVID reopening boom, weak earnings and price momentum have dampened prospects.
A notable development emerged on 3 February, when the Financial Times published an article labelling Chinese equity as "uninvestable." This sentiment echoed a Goldman Sachs conference in Hong Kong, where 40% of attendees shared a similar view. However, historical precedents caution against such sweeping declarations, recalling past instances where sensational headlines coincided with market turning points.
In response to mounting pressure, Chinese authorities have launched aggressive measures to bolster the market, including extensive buying of exchange-traded funds by domestic institutions and a recent 25 basis point rate cut to the five-year loan prime rate. While these actions may provide short-term relief, they underscore deeper concerns regarding deflationary pressures, poor earnings, and geopolitical risks associated with an assertive Communist Party stance.
Amid these challenges, opportunities arise in other emerging markets, buoyed by strong tourism numbers and a favourable shift in the commodity cycle. Countries like Korea and Taiwan stand to benefit from improving sentiment and accommodative monetary policies.
As we navigate this dynamic landscape, it's essential to remain vigilant, balancing tactical opportunities with long-term considerations. While short-term stimulus measures may offer respite, the enduring headwinds of demographic shifts, mounting debt, and geopolitical tensions warrant a cautious approach.
Stay tuned for further insights as we continue to monitor and analyse market developments.