Confidence in Chinese equities ‘shattered’
Confidence in the local Chinese equity market has been shattered and is unlikely to come back to previous levels any time soon
To stop trading is serious and from investors the most-hated market intervention. The open questions to reassess the local market are: 1) continuing selling pressure from investors under duress, 2) selling pressure due to leverage, 3) spillover effects to Hong Kong, and 4) consequences on household wealth and consumption.
The MSCI China and HSCEI index have also suffered. Foreign investors exposed to the local market use Hong Kong to proxy hedge their local exposure. Foreign investors investment behaviour is more rational and once the dust settles, they will again focus on whether the Chinese authorities’ latest measures to shore up the economy will work or not. Going forward our strategy is to: 1) reassess the local market and its consequences, 2) evaluate the authorities’ latest measures to stimulate the economy. We will reverse our call if 1) the Chinese authorities run out of tools to support the economy or 2) the measures become ineffective.
There are many open questions to reassess the market. The best place to be invested remains the MSCI China and HSCEI index.
Heinz Rüttimann is a strategy research analyst at Julius Baer