Investor sentiment for Chinese markets is on the downturn as losses deepen. There’s potential for a reversal, according to Lombard Odier which nonetheless advises continued vigilance.
Year-to-date, China’s CSI 300 Index is down around 2 percent, erasing all of the gains made from the reopening rally and some more. Hong Kong’s HSCEI has lost 9 percent thus far, making it one of Asia’s worst performers. Economic indicators also paint a gloomy picture in China, most notably from a contraction in manufacturing.
«Sentiment [on China] has been relatively poor. And regarding investor sentiments, nothing changes minds like price,» said Homin Lee, senior macro strategist at Lombard Odier, during a briefing attended by finews.asia.
Limited Bond Upside
On the fixed income outlook, Lombard Odier believes there is limited upside for Chinese bonds due to the interest rate differential compared to other major countries, especially the US, and the possibility of future rate cuts in such markets.
On equities, the bank is neutral to cautiously negative overall for all markets globally.
Potential Rebound
Despite the downturn in investor sentiments on China, Lee believes that there is scope for a reversal, especially given the relative strength of the nation’s economic growth.
«Markets are excited about Japan, a country that registers 1 percent growth,» Lee said, highlighting the contrast with China, which is targeting around 5 percent growth in 2023.
«If authorities can deliver growth support in the next few months to ensure that there is a degree of reflation […] this reality will be reflected in the pricing.»
Credit Tweaks
According to Lee, a potential growth booster in China could come in the form of short-term tweaks on the credit side. Although this could impact long-term credit trends, in light of ongoing worries about leverage in the country, he believes the cost will be minimal given the benefits, especially to the private sector.
«Now, it's a test. Investors have been waiting for this pivot for quite some time. They delivered a pivot in December in terms of the public health policy. For pro-growth policy, the time is ripe for authorities to deliver,» Lee added.
