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Goldman sees end of selling in Chinese stocks, but CCB, Everbright say only volatility is assured

  • Goldman says the end of selling in Chinese stocks is near, with policy backstop shoring up confidence in latest rebound
  • CCB International and Everbright Securities are more cautious, as China seeks to repair its economy and tone down intensity of regulatory tightening

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A sculpture of bulls in the Lujiazui business district in Shanghai, China, on Tuesday, July 20, 2021. Banks in China kept the benchmark loan rate unchanged, indicating that the central bank is continuing to keep policy stable despite a recent surprise move to add liquidity to the financial system. Photographer: Qilai Shen/Bloomberg
David Ren
A historic rebound in Chinese stocks over the past three months is convincing Goldman Sachs that the worst may be over. Strategists at CCB International and Everbright Securities, however, say only volatility is assured.
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The MSCI China Index, the broadest measure of stocks in mainland and offshore markets, has rallied 25 per cent since a slump on March 15, which Goldman deemed as the market bottom in a year-long correction. The Chinese internet sector capped a 53 per cent surge from that trough, recouping part of the US$2.1 trillion sell-off from a peak in February 2021.

“The latest recovery is on par with the historical market rallies after reaching their respective cycle troughs, with the index on average gaining 42 per cent and 59 per cent in six and 12 months from the bottom,” strategists including Kinger Lau said in a June 13 report. Indicators suggest regulatory intensity and concerns have eased, they added.
Historic rebound in Chinese stocks. Source: Goldman Sachs June 13.
Historic rebound in Chinese stocks. Source: Goldman Sachs June 13.
Others are still cautious about China’s economic recovery because of its stringent zero-Covid policy and the ambiguity surrounding the trillion-dollar crackdown on private companies, especially internet platform operators. Monetary tightening in the US and developed markets is also challenging risk appetite.
Stocks sank in Hong Kong and Shanghai on Monday along with a sell-off in regional markets on China lockdown fears. The fastest inflation since 1981 in the US is also stoking concerns about the Fed’s tightening overdrive.
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“In the short term, China’s policy concerns Hong Kong stock market more compared to interest rate rise,” said Zhao Wenli, chief strategist in Hong Kong at CCB International Securities, a unit of China Construction Bank. Investors must wait until August and September to assess policy announcements and Federal Reserve momentum, he added.

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