Chinese stocks are likely to sell-off in the next two quarters as Beijing refrains from activating full-scale stimulus: BCA Research
- China is trying to balance between staying the course on structural reform and stabilising growth, likely making any stimulus piecemeal in quantum
- A sell-off will provide investors with a good buying opportunity in the expectation of a more decisive or forceful stimulus
Investors should wait for the sell-off to run its course before picking up bargains when credit growth and investments, two major drivers of business activity, show meaningful recovery, it said in a report to clients.
Still, China’s “calibrated approach” to balance between structural reforms and economic stability means Beijing will only initiate piecemeal policy easing in the near term, strategists led by Sima Jing wrote in the report. Policymakers will only crank up stimulus if their pressure points are breached, they added.
“Prices for onshore stocks will likely fall in the next three to six months when the market starts to price in lower-than-expected economic growth and disappointing stimulus,” according to the December 8 report. “In absolute terms, onshore stocks are not unduly cheap and offshore stocks are cheap for a reason.”