Portfolio | Chinese stock market sell-off might be far from over

Although Beijing might be cheering the swift rebound in the A-share market after the worst rout in seven years, its nightmare may not be over.

In terms of valuation, a 30 per cent correction is not enough to justify the doubling of the A-share market price between October and June in an economy that is slowing down.

More importantly, the rescue measures by Beijing in using the most extreme administrative measures to intervene in the market could hurt stock price performance in the longer term as those steps represent a huge set back in cultivating a healthy onshore capital market.

Some bearish bets have been placed by some of the world’s biggest asset management firms.

In a note to its clients on Wednesday, Junheng Li at New York-based JL Warren Capital is forecasting the Shanghai Composite Index to fall to the pre-rally level of between 2,000 and 2,500 in the next six to 12 months. The view was echoed by AXA Investment Managers which said the China market may shed another 20 per cent from its current level.

“Halting IPOs (initial public offerings) is damaging to the development of financial markets in China and to the greater role for market-driven allocation of capital. SOE (state-owned enterprises) dinosaurs will love this development,” said Li.