Bank of Singapore is not yet positive on Chinese markets, underlining the need for geopolitical stability and sufficient stimulus to trigger a sustainable rally.
Chinese equities have been disappointing in 2023 thus far and while it currently undergoing a minor rally, investor uncertainty remains at high levels. This sentiment is shared by Bank of Singapore which is currently neutral on the market, due in part to worries about economic growth.
«Over the past two months, we have been seeing high frequency data all suggesting that growth has been losing momentum, especially for consumption,» said the bank’s China equity strategist Louisa Fok during a briefing attended by finews.asia. «This is still being led by services but broader consumption growth has not broadened out as fast as we anticipated.»
Two Factors
According to Fok, there are two major factors to consider before Bank of Singapore turns positive on Chinese stocks: geopolitical stability and sufficient stimulus.
On the former, the bank is encouraged by recent developments but hopes to see more direct dialogue with an eye on the upcoming APEC meeting this year. And on the latter, the bank notes that markets are hoping to see more support, especially on the demand side via measures such as loosening of home purchase restrictions or incentives for purchasing homes for self-use.
Rangebound Market
Markets are anticipating more signals about policy direction, especially in the upcoming Politburo meeting this month. Fok notes that if sufficient stimulus comes into play, it will be favorable for Chinese equities especially because the Fed is nearing the end of its hiking cycle.
«On the other hand, if the stimulus measures come in later than expected or the magnitude is smaller than the market anticipated, we do expect that the market could remain rangebound,» Fok explained.
In the event of strong stimulus, Bank of Singapore is positive on new energy vehicles, their related supply chain and copper. Should stimulus disappoint, the bank is positive on companies with pricing power to maintain margins and stable cash flow to support high dividends, such as selective consumer sub-sectors, telecommunications, utilities and renewables.
