A jump in holiday spending may do little to give Chinese stocks a much-needed boost.
(Bloomberg) — A jump in holiday spending may do little to give Chinese stocks a much-needed boost.
Trading in mainland equity markets is likely to kick off on a downbeat note when investors return Thursday after the Golden Week holiday, with any gains in consumer stocks expected to be short-lived, according to investors. A gauge of Chinese shares listed in Hong Kong has dropped 1.7% this week, led by technology stocks.
Traders are searching for the next catalyst for Chinese equities as the buzz surrounding the earnings season and a key political gathering fades. Companies reported a mixed bag of results over the weekend, and focus is shifting back to geopolitical risks and China’s uneven economic recovery.
“Tourism, restaurant and consumer-related stocks may rally but there is great uncertainty over how long that will last over the next few days,” said Shen Meng, director at Chanson & Co in Beijing. “Shares connected to the manufacturing sector will fall given that the official manufacturing PMI is in contraction.”
The benchmark CSI 300 Index has declined for three straight weeks, the longest losing streak since February, reflecting its waning momentum since posting a 20% gain in the three months through January. Much of the optimism was generated by the reopening of the economy but recent data suggests a patchy recovery and lagging industrial activities.
Although the non-manufacturing sector remains resilient, the manufacturing industry posted a surprise contraction in April. Meanwhile, data showed travel activities in China surged over the Labor Day holidays, with 274 million domestic trips recorded and tourism spending exceeding the pre-pandemic level of 2019.
Heightened tensions between Washington and Beijing are also deterring investors. The world’s two biggest economies have traded barbs over Taiwan and are locked in a battle for supremacy over the semiconductor industry.
READ: China’s Stock Gloom Needs More Than a Blockbuster Golden Week
The latest corporate earnings may not offer much relief. While several banks posted upbeat results, those from energy and metal producers showed a softer bias.
Amid these uncertainties, the Hang Seng China Enterprises Index — which is more susceptible to foreign selling — has dropped more than 15% from its January peak.
The Nasdaq Golden Dragon China Index has fallen in the past three days while the offshore yuan was little changed on Thursday.
“The key for the market to re-rate again from here is the confidence,” said Xiadong Bao, fund manager at Edmond de Rothschild Asset Management. Investors want to see “a generalized optimism in company guidance, capex and refinancing projects and better visibility for geopolitics,” he added.
Property Slump
Equity investors also have to contend with continued weakness in China’s property sector. Fresh jitters have emerged after authorities unveiled support measures last fall, with KWG Group Holdings Ltd. becoming the latest developer to default last week.
Bank of America Corp. has warned that Chinese stocks will remain “volatile and difficult” in the near term due to mixed data and geopolitical risks. Similarly, a recent survey by JPMorgan Chase & Co. showed that investors consider China to be the country they are most likely to retreat from among emerging markets.
“Many concerns seem to stay in the back of investors’ mind, such as the property market and geopolitical concerns,” said Jian Shi Cortesi, a fund manager at GAM Investment Management. “Some international investors we talked to also indicated that they are waiting to see stronger market momentum in China before they increase exposure.”
–With assistance from Tian Chen.
(Updates with Labor Day holiday data in sixth paragraph)
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