Nicholas Spiro

The View | China’s stock market bulls and bears are locking heads, leaving room for cautious investor optimism

Nicholas Spiro says despite the recent market turbulence, the divergence of views on Chinese stocks and the economy means the country’s equities could still be attractive

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A woman touches a bull statue on display outside a mall in Beijing on June 18. The Shanghai Composite Index and Shenzhen Composite Index have slid nearly 25 per cent in a month. Photo: AP

Nicholas Spiro

Published: 1:00pm, 6 Aug 2018Updated: 10:29pm, 6 Aug 2018

That was quick. No sooner did China’s battered equity markets receive a fillip from Beijing’s recent slew of measures aimed at countering the economic slowdown than a three-week-long rally gave way to renewed selling pressure.

On Thursday, the CSI 300, a gauge of large mainland-listed stocks, suffered its sharpest fall in a month, helping it erase almost all the gains it made in July and leaving the index down by nearly 25 per cent from its recent peak in late January. Composite gauges for the Shanghai and Shenzhen exchanges, which performed strongly for most of July, have also resumed their declines and have lost more than 23 per cent since their January peaks.

The catalyst for the latest sell-off was US president Donald Trump’s decision last Wednesday to instruct his trade negotiators to consider more than doubling proposed tariffs on US$200 billion in annual imports from China, marking the latest escalation of the trade conflict between the two countries that has contributed to this year’s sharp falls in China’s foreign exchange, equity and corporate debt markets.

While the severe strain on Chinese assets, coupled with this year’s marked slowdown in domestic demand, have revived memories of the 2015-16 crisis, the turmoil has also created opportunities for traders and investors, partly because of the recent shift towards looser monetary and fiscal policies, but mainly as a result of more attractive valuations.

The rout in Chinese stocks – nearly US$2.3 trillion has been wiped off the value of the country’s shares since January (nearly half of this in the past two months), according to data from Bloomberg, allowing Japan to reclaim the title of the world’s second-largest equity market – has provided ammunition to bulls and bears alike. The divergence of views comes at a time when pockets of value are emerging in developing economies following a steep sell-off, but also when China itself has again become a focal point of market nervousness after more than two years of relative calm.