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Concerns over China’s ability to revive its faltering economy are contributing to the investor skepticism. Beijing has vowed to boost consumption and support private enterprises but stopped short of providing financial support such as handing out cash to families or offering tax breaks to businesses. While officials have asked local authorities to stabilize the property market, no specific details were provided. Investors appear to be seeking concrete action rather than promises, with Morgan Stanley strategists highlighting those significant improvements in key areas, including debt and the labor market, are needed for sustainable inflows.
Despite a lackluster response from foreign investors, some global fund managers may consider reducing their underweight positions as valuations have fallen. The MSCI China Index is priced below its five-year average multiple and is valued at a 14% discount compared to the MSCI Emerging Markets Index. Thursday’s gains, boosted by a survey showing China’s services activity expanded faster than expected in July, along with potential central bank actions to boost lending, might provide some impetus for optimism. Nevertheless, further monetary support and concrete measures are deemed essential by experts like Vivian Lin Thurston from William Blair Investment Management LLC.
Investors are being advised to approach the Chinese market with caution, focusing on stock-picking rather than broader macro strategies. The lack of specific measures to address China’s economic challenges has intensified concerns that the problems have no quick solutions, making a sustainable equity rebound seem unlikely. Arthur Budaghyan, the chief emerging markets strategist at BCA Research Inc., recommends selling into strength on any announcement creating optimism, as the stock rally may not last long. The article does not highlight any potential optimism, emphasizing that business cycles and corporate profits may disappoint again.
This article was originally published on Quiver Quantitative
