Chinese real estate and technology stocks fall into bear market quagmire

Recently, Chinese real estate and technology stocks are on the verge of a technical correction, leading to doubts about whether the recent rebound in the Chinese stock market can sustain.

According to Bloomberg, the Hang Seng Tech Index has risen by 26% from its lows in April, while an index measuring Chinese property stocks listed in mainland China and Hong Kong has surged by 74% during this period. However, both have since retraced. Market analysts suggest that this increase may have been merely tactical operations based on undervalued stocks. Concerns about profitability, disappointment in government stimulus measures, as well as tensions in geopolitical situations continue to influence market sentiment.

On Thursday, the Hang Seng Index fell by 246.82 points, a decline of 1.34%. The Shanghai Composite Index dropped by 19.34 points, a decrease of 0.62%.

Thomas Gatley, China strategist at financial services firm Gavekal Research, wrote in a report on Wednesday, “The pullback since May 20 indicates doubts about whether policy statements can translate into reality once again.” “In the long term, the key to achieving more sustainable returns is overcoming the net liquidity dynamics with long-standing severe negative values, which may involve a reassessment of China’s industrial policies.”

The escalating price war in China’s artificial intelligence services and the deepening trade war with the United States are putting pressure on Chinese technology companies. Further loosening measures in major Chinese cities’ real estate markets and the government’s extensive market rescue plans have not alleviated concerns about sales improvement.

Due to the underperformance of the Chinese stock market in recent years, fund managers have maintained a cautious attitude. The weakening trend in stock prices this year has also reduced the probability of this emerging market outperforming the broader market, testing the confidence of value investors.

Industry analysts suggest that the reduction in holdings by emerging market investors in China could pave the way for more capital inflows when economic prospects improve. Record-breaking stock buyback spending and other measures this year could also provide support to the market.

Shen Meng, director at Beijing-based investment bank Chanson & Co., said, “It will take time to verify whether the policies put in place can address the core issue of economic slowdown.” This has led investors to hesitate in continuing to invest in China’s technology and real estate sectors.