Absent stimulus, pain for China stocks will continue, Cambridge Associates says

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The misery for investors in Chinese stocks is likely to last for the rest of the year, according to asset manager Cambridge Associates

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A bull statue along the Bund in Shanghai. Photo: Bloomberg

Zhang Shidongin Shanghai

Published: 3:40pm, 18 Sep 2024

The misery for investors in Chinese stocks is likely to last for the rest of the year, due to an absence of meaningful monetary and fiscal policies, as well as geopolitical headwinds, according to global asset manager Cambridge Associates.

The Boston-based money manager is now neutral on Chinese stocks after having been slightly overweight, reflecting Beijing’s inaction on arresting the deflationary trend, Aaron Costello, the firm’s head of Asia, said in an interview this week. Even an interest-rate cut from the Federal Reserve, which is seen by many traders as a positive event that will improve liquidity in emerging-market stocks, will not be enough to spur a rally, he said.

“In the absence of meaningful fiscal and monetary stimulus, we think it will be difficult for Chinese equities to outperform for the rest of the year,” Costello said. “To have a sustained rally in Chinese equities, China’s economy needs to accelerate, and deflationary pressures need to ease to allow company earnings to recover. As of now, there are few signs this is happening.”

China’s benchmark CSI 300 Index is down nearly 8 per cent this year, making it the worst performer among the world’s major stock gauges. It hovered near its lowest level since January 2019 on Wednesday, as traders digested some key economic data for August that missed economists’ projections. Industrial production and retail sales both missed expectations, and a downtrend in home prices continued, according to official data releases over the weekend.

The CSI 300 is now valued at 11.5 times projected earnings for the year, compared with its five-year average of 13.8 times, according to data from Bloomberg. By comparison, the S&P 500 Index trades at a multiple of 23.2 times and the Nikkei 225’s is 20.4 times, the data showed.

“While equity valuations are attractively priced for significant upside, unlocking this value requires a rebound in China’s domestic sentiment and demand, which will require additional policy support,” Costello said.