On September 11 (Wednesday), a report from Citibank in the United States warned that it is still too early to buy European stocks closely related to China at low prices. The report predicts that the Chinese authorities are unlikely to introduce major stimulus measures in the near future that investors have been hoping for to restore confidence.
According to Bloomberg, Citibank strategist David Groman stated in the report, “We have not yet bought into the European stocks closely related to China at low prices. … Chinese data remains weak, and major stimulus measures are unlikely to emerge in the short term.”
Groman pointed out that profit expectations for luxury goods manufacturers, mining companies, and automotive manufacturers have declined more significantly than the overall market, a situation that is not expected to change in the short term.
These industries are facing challenges due to their high dependence on demand from China.
As Chinese buyers cut back on spending, luxury stocks from companies like LVMH to Kering SA have seen significant declines this year. Approximately 30%-35% of global sales in the luxury goods industry come from Chinese consumers, but the demand has not shown a significant rebound.
In the trade dispute between Europe and China, automakers Volvo and Porsche have become popular targets for short sellers.
With no signs of improvement in the downturn of the Chinese real estate industry, mining companies like Rio Tinto and Glencore have seen their stock prices fall by over 20% this year.
Groman believes that despite the pullback in these stocks, their earnings momentum remains weak.
The challenge is not only reflected in stock prices but also in earnings. European companies heavily reliant on China face deeper earnings downgrades compared to their peers.
The Citibank portfolio of European companies closely related to China has fallen by over 7% this year, a noticeable contrast to the 6% increase in the Stoxx 600 index.
Furthermore, geopolitical factors cannot be ignored. With the US presidential election heating up, presidential candidate and former president Trump has heightened investor concerns about the trade war. This poses a significant risk for assets sensitive to the Chinese economy.
Financial advisory website Investing.com believes that Citibank’s stance reflects a broader market sentiment – it is still too early to invest in the European stocks related to China. These stocks remain a “high-risk investment” until the signals regarding the direction of the Chinese economy and policy intervention become clearer.
However, the views of Citibank analysts contradict those of Bank of America Corp.
Last week, the Bank of America team stated that the decline in European luxury goods and semiconductor stocks may provide attractive entry points. The bank believes that the Chinese economy may reaccelerate in the next three quarters.