After erasing gains made year-to-date, Chinese equities have recently been rebounding. There could be more hurdles ahead but the market is likely not far off from the bottom, according to Pictet Wealth Management’s Asia chief investment officer Hugues Rialan.

Although Chinese equities saw a strong rally in the first quarter of 2023 following the country’s reopening, the trend reversed in April due to weakness in economic indicators, including decelerated consumption recovery and marginal improvement in the labor market.  

From its April peak, the CSI 300 has shed nearly 9 percent to hit 2023’s trough in early June but has since posted a 2.5 percent rebound.

According to Pictet Wealth Management's Asia chief investment officer and head of discretionary portfolio management Hugues Rialan, there are signs that the market has bottomed or is close to doing so.

Government Support

Rialan notes that one of the major drivers for optimism is increasing government support, albeit at moderate levels, across monetary easing and targeted fiscal stimulus.

«The market is cheap and we think that it was actually waiting for a reason to invest. That catalyst might have been the small steps taken by the Chinese government and the People’s Bank of China,» Rialan said during a media briefing attended by finews.asia.

Easing Tensions

In addition, Rialan also underlines the potential for easing geopolitical tensions, or at least no further escalation. One key event to gauge this matter will be the upcoming APEC summit held in San Francisco in November.

«There are rumors that Xi Jinping might attend and if that’s the case, we should see a Biden-Xi meeting,» Rialan explains. 

«And, of course, these are very scripted meetings. [If Xi attends], this likely means that geopolitical tensions are going down because he would not consider travelling to the US if he was to be given a hard time when he lands.»

Recession Risk

Nonetheless, there are still challenges ahead and one particular scenario that could send Chinese equities even lower is the risk of a recession in the US which could trigger a correction in the American market.

«Typically, the Chinese market is still impacted by foreign investors. If we are to see the US correct, that risk-off movement will probably affect other markets as well,» Rialan added.

«In any case, China is probably not far from the bottom. The market is cheap, we are moving in the right direction and maybe we have not fully bottomed but we are not far from it.»