Hopefully, Chinese markets want action, not more political compromise

  • Stock must follow promises for market to rally investors
  • Tech firms hope high-level meeting will signal regulatory relief
  • Global money remains wary of China amid COVID-19 lockdowns, political caution

SINGAPORE, May 5 (Reuters) – Promises of supportive policies and a possible meeting between tech giants and China’s leaders this week have helped stem a slide in the country’s stock markets for now, but investors hope it is unlikely to attract new inflows until economy stabilizes

Mainland Chinese and Hong Kong stocks have severely underperformed their global peers in recent years as trade tensions, regulatory crackdowns, the pandemic and now new COVID-19 lockdowns have weighed on sentiment. business confidence and profits.

In addition, the once mighty real estate sector has been in contraction, cut off from credit since major developer Evergrande (3333.HK) defaulted on bond payments last year.

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Hopes are centered on vague promises of help, last week from the powerful Politburo and in March from Vice Premier Liu He, as well as the possibility that a high-level meeting will signal the end of a long-running crackdown on the internet sector. read more

“There’s a lot of upside here,” said Mohammed Apabhai, Asia-Pacific trade strategist at Citibank in Hong Kong, who said investors now appear inclined to buy dips as they wait for supportive rhetoric to turn into action.

“Positioning is so light…it doesn’t take much for this market to put together a fairly substantial move,” he added.

Talks between tech companies and Chinese leaders reportedly scheduled for Friday are a source of cautious optimism, even if that may not trigger an immediate return to the heavily sold-off sector.

Food delivery giant Meituan (3690.HK) was among the guests, one person said, while the South China Morning Post reported last week that Alibaba (9988.HK), Tencent (0700.HK) and owner from TikTok, ByteDance, had also been invited.

“Investors have been very afraid of China’s internet regulations, which leads to wild selling,” said Jian Shi Cortesi, chief investment officer for China and Asia equities at GAM Investments.

“Instead of specific actions, investors probably want to see less action in terms of internet regulation (and) may need some time to regain confidence.”

In just over a year, the MSCI China Hi-Tech Index (.dMICN00000PUS) has almost halved, compared to a 2% rise in global stocks (.MIWO00000PUS) and a 10% rise for the S&P 500 (.SPX).

China’s short-term economic outlook is bleak, with lockdowns in some of its largest cities looking set to last well into May. read more

Factory activity shrunk for the second straight month in April and at its fastest pace in two years as anti-virus measures disrupted production and supply chains, while services activity slumped as hundreds of orders were ordered. of millions of people to stay at home. read more

But China’s politicians have been cautious about rolling out new stimulus. If workers are stuck at home and factories can’t get their products to market, traditional policy stimulus tools like interest rate cuts or liquidity injections may have only limited impact, analysts said.

“We still believe that markets need to remain focused on the unfolding of the pandemic and the corresponding zero COVID strategy,” said Nomura economists, who noted sharp drops in travel and spending over the Labor Day holiday. read more

“All other policies are of secondary importance,” they wrote.

The depth of nerves among global investors, particularly since sanctions on Russia highlighted the existential risks of investing abroad, is also holding capital back.

“We believe that the regulatory easing is just a breather and not a permanent change in policy,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments.

“After they rev up the economic engine again (authorities) could re-impose restrictions on companies. We think Chinese stocks are attractively priced, but there are some unattractive risks.”

Still, the last few weeks have given some money managers enough hope to start dipping again.

“It depends on your risk appetite,” said George Boubouras of K2 Asset Management in Melbourne.

“Our Asian fund has not held a large position in China equities since mid-2021 due to mixed messages coming out of Beijing.

“However, over the past month, with the new lows, we started to build positions from a low base.”

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Information from Tom Westbrook; Additional reporting by Xie Yu in Hong Kong and David Randall in New York; Edited by Kim Coghill

Our standards: the Thomson Reuters Trust Principles.

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