Brokerages’ predictions of rebound fail to excite traders

Predictions by some of China’s biggest brokerages of a sustained stock market rebound remain unconvincing, at least for now, analysts said.

While Citic Securities, China International Capital Corporation (CICC), Haitong Securities and other major brokers say the recent bounce-back spurred by finetuning of Covid restrictions still has momentum, traders are reluctant to make further bets on the reopening theme after an initial flurry of excitement.

A CSI 300 sub-gauge of onshore consumer discretionary and staples stocks has dropped at least 2.5 per cent since November 11, when China unveiled a 20point set of guidelines to loosen pandemic controls, making it one of the worst performers of the 10 industrial groups on the index. Utility stocks have risen more than 5 per cent, making them the biggest gainers.

That is a far cry from an earlier prediction that consumer stocks, ranging from liquor distillers to duty-free store operators and travel agencies, would benefit from a reopening as it would boost consumer demand.

The divergence underscores investors’ fears that China’s eventual exit from zero-Covid will be bumpy and later than expected.

The recent wave of infections has heightened fears that local government lockdowns will continue to inflict damage on the economy, while protests in some big cities have also stoked social unrest concerns.

“Social discontent could increase in China over the coming months, testing policymakers’ resolve to stick to the zero-Covid mandate,” said Stephen Innes, a managing partner at SPI Asset Management in Bangkok. “Accelerating reopening plans when new Covid cases are rising is unlikely, given the low vaccination coverage of the elderly.”

While prospects remain challenging in the near term, the brokerages are sticking to calls that stocks will rise in the long term, citing ample liquidity, attractive valuations and gradual relaxation of pandemic curbs.

CICC said it was positive on stocks over the next 12 months, with the market exhibiting some characteristics of a bottom, while Citic Securities argued the big trend of easing Covid restrictions remains intact.

Guotai Junan Securities recommended buying the dip.

“This round of economic recovery will be rocky and there will even be downside pressure on growth through the first quarter of next year,” it said in a note. “But it’s no longer a one-way down market now. Stocks will trend up after some back and forth.”