Recently, the surge in the A-shares market in China has failed to convince some major global financial institutions, as they await concrete actions from the Chinese authorities to deliver on their stimulating measures. Moreover, they are concerned that even with massive stimulus spending, the Chinese government may not be able to address the structural issues hindering long-term economic growth.
According to a report by Bloomberg on October 6, the global rally in the Chinese stock market has not convinced many global fund managers and strategists. Institutions such as Invesco Ltd., JP Morgan Asset Management, HSBC Global Private Banking and Wealth, and Nomura Holdings Inc. have expressed skepticism towards the rebound in the Chinese stock market, waiting for the Chinese government to fulfill its economic stimulus promises with real actions. Some are also worried about overvalued stock prices.
On September 24, the Chinese authorities introduced a series of stimulus measures, leading to a sharp rise in the stock market.
“In the short term, market sentiment may become overly inflated, but people will eventually return to fundamentals,” said Ma Lei, Chief Investment Director for Hong Kong and China at Invesco, “Due to this rebound, some stocks have become overvalued.”
Tai Hui, Chief Asia Market Strategist at JP Morgan Asset Management, stated that China still needs more policies to boost economic activity and confidence, and global uncertainties may hinder the recent stock market rally.
“With just one month left until the US election, many investors believe that the US sees China as an economic and geopolitical rival, which is a consensus between the two parties,” he said. “Currently, foreign investors may choose to wait for economic data to bottom out and for new policies to stabilize.”
HSBC Private Banking expressed concerns that the measures taken by the Chinese government may not be enough to reverse the slowdown in long-term economic growth.
Van Duon Yun, Chief Investment Director for Asia at the private bank and wealth management firm, stated that the measures taken by the Chinese government may not be sufficient to reverse the prospects of long-term growth slowdown, and that greater fiscal loosening is still needed to maintain the recovery momentum and boost growth to achieve the target of 5% GDP growth this year. The current forecast suggests that Chinese economic growth will slow from 4.9% this year to 4.5% in 2025.
The Wall Street Journal reported on October 7 that despite the significant market rally, fund managers and economists continue to question whether the Chinese government can prevent the economic vicious cycle that has formed. One concern is that the measures being discussed by the government, including large-scale stimulus spending, may not help much in addressing the growing structural challenges hindering China’s long-term growth.
In a presentation held by the Center for Strategic and International Studies on October 4, Mary Lovely, a senior researcher at the Peterson Institute for International Economics, said, “This is the signal we have been waiting for, indicating that they understand that the economy is on the brink, and the Chinese leadership has recognized the problem of tight credit and the negative cycle it can lead to.”
Jorry Noeddekaer, head of the emerging markets team at Polar Capital, said, “Chinese consumers and private enterprises no longer believe as much in the Communist Party of China and President Xi Jinping as they used to.”
Brian McCarthy, head of the global macro advisory firm Macrolens, stated that the recent surge has been mainly driven by hedge funds and other flexible investors, while long-term fund managers and pension funds are closely monitoring the situation. He anticipates that a stimulus plan of around RMB 5 trillion to 10 trillion may be introduced.
McCarthy mentioned that such a comprehensive plan might require China to launch large-scale infrastructure projects, although China has been trying to move away from this reliance. This shift amounts to Chinese leaders openly acknowledging that Xi Jinping’s efforts to break away from the previous growth model are failing.
International investors are worried about the challenges China will face in the future. With increasing unemployment, falling prices, consumer and business confidence in China continue to deteriorate. The real estate market is in a prolonged slump, with real estate accounting for 70% of Chinese household wealth.
Ajay Krishnan from Wasatch expressed surprise at the despondency of enterprises. He mentioned that during the latest round of stimulus measures announced by the Chinese government, he was visiting China. “The Chinese government hopes to reignite confidence, but I don’t know if they can achieve it. People are not spending, and they are not optimistic about the prospects and employment.”
After the conclusion of the Golden Week holiday, A-shares markets will reopen tomorrow (October 8). Today, discussions about the trend of A-shares have trended in the top three on Weibo. Many investors are wondering whether the A-shares are a one-time event or the start of a bull market.
Professional investors and popular Weibo user “WanDianHao” shared screenshots, stating, “The top ten shareholders of listed companies are all frantically reducing their holdings, and I haven’t seen anyone increasing them… disappointing!!!”
The screenshots revealed that China Merchants Highways announced that shareholders holding more than 5%, such as Taikang Life, plan to reduce their holdings by no more than 0.4% of the company’s shares; while Mingpu Optical and Magnetic announced that controlling shareholder Yang Xianjin (holding 32.49% of the shares) plans to reduce the holdings by no more than 5.01% of the company’s shares.
In response, a netizen commented, “Executives and major shareholders understand the company and the industry the best, their reduction in holdings shows their lack of confidence in the company and the industry. Therefore, IPOs must be cautious to avoid making a mess.”
Financial blogger “XiaoXuKanCaiJing” said, “As the holidays end, the post-holiday A-shares market trends draw attention. With economic recovery, policy support, intertwined market sentiment, and influence from international stock markets, the trend is unpredictable, and investors need to respond rationally.”
Chinese economist Ren Zeping posted, “Many investors and entrepreneurs have expressed their concerns recently: Can this round of stimulus policies be sustained? Is the stock market rebounding or reversing? Can the economy really pick up?
“If this round of stimulus policy becomes a flash in the pan, leading to extreme market fluctuations, no improvement in the economy, it will wipe out a section of the middle class, and a second blow to business confidence, undoubtedly making a bad situation worse… Therefore, this not only affects the rise and fall of the stock market, the market’s condition, to a certain extent, it affects the nation’s fate, as well as the destiny of each of us. Hopefully, at this historical crossroads, we can choose the right direction.”