Friday, September 30

China Traders Gear Up to Add Stocks Betting Worst Is Over

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(Bloomberg) — Chinese investors are planning to boost stock positions on bets the market has already bottomed out or will do so soon, forecasting gains of 4% to 5% by the end of June.

That’s according to a Bloomberg survey of 21 fund managers and analysts based in China and Hong Kong, 43% of whom believe A-shares have already reached a trough and another 33% expect markets to bottom out this quarter. The rest are unsure of the timing or still see a further dip.

The survey results suggest a growing number of market participants believe the sharp rebound following a mid-March rout likely marked the start of an eventual turnaround. Repeated pledges by Chinese authorities to calm markets have lifted stocks from last month’s lows, but lengthy lockdowns to curb Covid and persistent regulatory worries have worked against a sustainable uptrend for equities.

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For stocks listed in Shanghai and Shenzhen, two thirds of those surveyed plan to increase positions this quarter, while less than 10% said they will cut back on equity exposure. For Hong Kong stocks, around half of the respondents are readying to add more and the rest are planning to stand pat.

That said, the gains investors expect are still modest. The median estimate for China’s benchmark CSI 300 Index and Hong Kong’s Hang Seng Index for the end of this quarter is 4,400 and 23,000, respectively, implying 4% and 5% increases each from Friday’s close .

For the year-end, the survey points to around 11% gains for the former and 14% for the latter.

Chinese tech shares have underperformed this year with the added risk of getting removed from American exchanges as authorities in the two countries spar over audit rules. But with the Hang Seng Tech Index down 60% from a 2021 peak, all but three of the respondents said the worst is behind or almost over, citing cheap valuations that will lure dip buyers.

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Covid Risks

A worsening Covid situation was seen as the biggest risk facing the stock market, according to the survey, which was conducted end-March. Concerns over a slower-than-expected economic recovery in China and bilateral tensions with the US outweighed worries over a potential US delisting of shares and inflation sparked by the war in Ukraine.

Renewables, hardware tech and energy sectors were seen as most likely to outperform among A-shares this quarter, while healthcare and internet firms were the most favored among H-shares.

For both onshore and offshore, real estate and financials were the least favored. This suggests traders don’t expect the recent rally in the two sectors to have legs, with a Shanghai gauge of property developers up 28% from a low in mid-March .

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