Investment Managers Weigh In On China’s Stock Market Rescue Package

Amanda Cheesley Deputy Editor 25 January 2024

Investment Managers Weigh In On China’s Stock Market Rescue Package

After stock markets in China and Hong Kong slumped to multi-year lows this week, with confidence crumbling, investment managers discuss the rescue package being considered by the Chinese authorities.

Optimism over the Chinese government-proposed rescue package is being reported as insufficient to restore confidence until an official response is announced, according to certain investment managers.

The Chinese authorities are reportedly considering measures to stabilise the country's stock market following Premier Li Qiang’s call to support the development of capital markets during the state council meeting.

These measures include setting up a 2 trillion Chinese renminbi ($279.81 billion) stabilisation fund to invest in A shares through northbound trading, injecting 300 billion Chinese renminbi into the domestic market through state-owned firms, and supporting the currency exchange rate. These measures, however, have yet to be finalised. The domestic CSI 300 index was still down 0.5 per cent in the morning trading session on Wednesday, bringing the year-to-date loss to 6.2 per cent. 

“If the plan materialises, this would be the eighth time since 2008 that China’s “national team” enters the A-share market,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a note.

“The reported size of the fund, at around 8 per cent of total free float market capitalisation, compares with about 10 per cent seen in 2015. However, the source of the funds remains unclear,” he continued. “Looking back at previous episodes of the national team’s buying, we think such intervention does help relieve market sentiment. But for a sustainable positive market performance, other supportive policies are likely required as well,” he added on Wednesday.

Haefele still likes Chinese equities within UBS’s Asia portfolios because he thinks that policy support will take a step up this year, with potential to surprise to the upside. He thinks investors should actively manage their exposure, and recommends a more defensive allocation to high-yielding sectors in the short term. 

Meanwhile, Aninda Mitra, head of Asia macro and investment strategy at BNY Mellon Investment Management, believes that China’s stock market package is a welcome measure which shows increasing responsiveness from the authorities.

“But, at under 2 per cent of its GDP, we fear this is still inadequate. To put this in perspective, while this amount is around 20 per cent of the current value of Chinese enterprises listed in the HK stock exchange, it is still below the delta reduction in the market cap of these enterprises from early December to now. Moreover, these measures also need to be twinned with longer-term reforms to boost confidence in [the] broader corporate sector. These are far from obvious,” Mitra said in a note.

“All said, considering how cheap Chinese stocks have gotten and how under-owned they now appear, we would not be surprised by a short-term boost in sentiment and prices. But we doubt its sustainability unless these are complemented by a broader package of far-reaching reforms,” Mitra added.

Nevertheless, Andrew Lapping, chief investment officer at Ranmore Fund Management, sees the sharp decline in the Chinese market as an opportunity. “As an investor, it is important to take advantage of opportunities when they arise, this is often difficult as the crowd is usually moving in the opposite direction. For sure, there are risks in China, but then there are risks everywhere, and it depends on what is in the price,” Lapping said on Wednesday.

“Over the past year, the S&P 500 is up over 20 per cent while the Hang Seng is down 30 per cent. There is no way the underlying business values have diverged to this degree. This underperformance, particularly over the past month, has given us the opportunity to buy high quality, well-capitalised businesses at very low prices – an exciting opportunity,” Lapping concluded.

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