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China economy
OpinionComment
John Woods
John Woods

The View | As Chinese stocks climb despite wall of worry, how long more will onshore investors wait in the wings?

  • Investors have reason to worry about geopolitical risks, China’s economic challenges and tightening global monetary conditions
  • But a positive ‘two sessions’ outcome could finally bring out traditionally cautious onshore mutual funds and retail investors to join the rally

Reading Time:3 minutes
Why you can trust SCMP
Futures data is displayed on a stock ticker in Pudong’s Lujiazui Financial District in Shanghai, China, on January 30. Domestic investors are waiting for March, when the annual meetings of the NPC and CPPCC will set the economic and market tone for the coming year. Photo: Bloomberg
John Woods

For a market rally to sustain, it must climb a wall of worry every day, surmounting the challenges, fears and negativity put in its way. Painfully and step by step, it is how bull markets typically develop, evolve and push higher – and this is how China’s equity rally has behaved in recent months.

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Born out of an expectation last October that Beijing’s detrimental trifecta of zero-Covid, property deleveraging and policy intervention would be remedied, then given hope and oxygen last November by the start of China’s economic reopening, the rally in the MSCI China Index has gained a (halting) traction of sorts. This has resulted in a price appreciation of around 9 per cent for the year to date.
Yet China’s wall of worry is high and pitted with obstacles to trip up the unwary investor. Geopolitical risks could undermine positive investor sentiment at any time.

Meanwhile, the tightening of global monetary conditions and China’s economic challenges complicate an already opaque investment thesis.

Over this year, China’s growth and earnings outlook will comfortably outperform its developed market peers, and this is a main reason the bull market is alive and well. But there is uncertainty as to whether official policy will remain investor-friendly, simmering asset quality issues in the banking sector, and looming solvency risks, albeit in the medium to long term, among local government financing vehicles. Think of it as a yet another brick in China’s great wall of worry.
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Still, the mood towards emerging markets generally – and China in particular – is gradually brightening.

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