INVESTORS ‘WAIT FOR CLARITY’ ON MARKETS
Private bankers at Deutsche Bank and Lombard Odier say clients want to see stability in economic indicators before returning to mainland stocks
The erratic performance of mainland stocks is not giving investors the confidence to commit their funds for the long haul, according to top private bankers at Deutsche Bank and Lombard Odier.
Policy changes and a troubled housing market were the two main culprits, they said.
Investors are willing to wait for policy clarity and stability in economic indicators before returning to the market, or rely on alternative offshore assets as proxies if they choose to stay invested in China’s economic recovery story.
“China is very much a secondhalf-of-the-year story for us,” said Stefanie Holtze-Jen, chief investment officer for Asia-Pacific at Deutsche Bank Wealth Management. “What an investor needs to see is repeated macroeconomic data shifts, some consistency. Until then, there will be a bit of hesitation.”
The German private bank, which manages about US$593 billion of client assets globally, took a position on mainland stocks in February after seeing signs of stabilisation, but abandoned the trade last month because fragile market sentiment was not likely to sustain the momentum, it said.
China entered the second quarter with a mixed bag of economic outcomes. Reports this week showed first-quarter growth of 5.3 per cent surprised to the upside, while credit growth, industrial production, retail sales, housing starts, and home prices were sluggish or weak.
The MSCI China Index, which tracks more than 700 stocks listed at home and offshore, has declined by 35 per cent since 2021, compared with a 6.2 per cent gain for the S&P 500 and a 33 per cent rally in the Nikkei 225 Index. Despite state-led market intervention, the gauge has lost 1.8 per cent this year, while the S&P 500 and the Nikkei 225 advanced by 6 and 15 per cent, respectively.
Investors have pulled their money from the market again, as benchmark stock indices wobbled. Global funds have sold more than 11 billion yuan (HK$11.9 billion) worth of mainland stocks so far this month as of Monday, halting inflows in February and March, according to Stock Connect data.
Policymakers in Beijing are stepping up efforts to support the market, including issuing unprecedented guidelines for better market transparency and risk management.
That meant there were still opportunities for tactical trades in mainland stocks in state-favoured sectors such as renewable energy, Deutsche Bank’s Holtze-Jen said.
Swiss private bank Lombard Odier removed its strategic allocation to Chinese assets earlier this year.
The market’s underperformance meant there was no imminent incentive to return, said John Woods, chief investment officer and head of investment solutions for Asia-Pacific.
Consumer sentiment, retail sales, and home sales were all really “quite depressed”, and consumers were nowhere to be seen in the current stage of economic recovery, Woods said.
“We have to wait and see if the government is able to provide sufficient stimulus, both monetary and fiscal”, before animal spirits were reignited, he added.
“Our clients would be looking at its underperformance relative to global markets as being a little concerning. It’s hard to see an immediate bounce back from a structural perspective” as the property challenges persisted and consumption remained subdued, Woods said.
Bear-market rallies were as frequent as they were fleeting and they rarely provided a credible opportunity to build a long position, Lombard Odier said in a report earlier this month.
Policy settings and policymakers had replaced earnings and valuations as market drivers, creating a greater element of unpredictability, it added.