China Market Update: What’s On The Horizon For China Stocks, Week In Review (2024)

Week in Review

  • Asian equities were mixed this week as Hong Kong underperformed, and the Philippines outperformed.
  • The electric vehicle ecosystem saw some reprieve from talks between China and the European Union on tariffs.
  • Beijing’s local government lowered minimum downpayment ratios and implemented other measures to encourage first-time homebuyers.
  • The Third Plenum important policy meetings were officially scheduled to begin on July 15th, 2024, according to an announcement on Thursday.

Key News

Asian equities were largely higher except for small losses in Singapore, Thailand, and India.

President Xi gave a speech reiterating China’s reform and opening up policy, following up on Premier Li’s speech at the Summer Davos Forum, stating “China will only open itself ever wider to the outside World.” The PBOC’s quarterly Monetary Policy Committee meeting noted China’s economy “continues to rebound and improve” despite “challenges such as insufficient effective demand and weak social expectations”. This is good counsel for government leaders with the Third Plenum meetings only two weeks away.

Hong Kong and Mainland China opened lower, rose, and then eased, coming off of intra-day highs. Hong Kong-listed growth stocks were down, but not nearly as much as US-listed China stocks on Thursday. This was on no news. It is hard to explain yesterday’s ADR meltdown, though Asian investors clearly did not share the pessimism. Hong Kong’s most heavily traded stocks by value were Tencent, which fell -0.53% versus its over-the-counter US listing, which was down -1.8% yesterday in US trading, Meituan, which fell -2.29% versus its unsponsored ADR, which fell -2.93%, China Mobile, which gained +2.67%, Alibaba, which fell -1.47% versus the ADR, which fell -2.43%, and China Construction Bank, which gained +0.87%. JD.com was off -2.09% in Hong Kong versus its ADR, which was down -4.54% yesterday. NetEase fell -0.8% versus its ADR, which fell -0.70%, Trip.com gained +0.32% versus its ADR, which fell -2.8%, Bilibili gained +0.16% versus its ADR, which fell -2.86%, and Baidu fell -0.99% versus its ADR, which fell -1.34%. Mainland investors bought a healthy net $468 million worth of Hong Kong-listed stocks and ETFs overnight.

Nike’s financial results weighed on its supply chain despite their China revenue increasing while North America decreased. Local competitor Anta Sports fell -1.57% after a profit warning.

Mainland China managed small gains off intra-day highs as the Mainland-listed China equity ETFs favored by the National Team saw above slightly average volumes. Mainland growth stocks were off, including CATL, which fell -2.69%, and Kweichow Moutai, which fell -1.55. Broker East Money fell -6.88% on no news, weighing on the brokerage space. Energy, utilities, and industrials had a strong day.

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Today is the last day of the quarter, which might explain yesterday’s ADR downdraft, but it is obviously hard to say. Official June Manufacturing and Non-Manufacturing PMIs will be released next week.

It was funny to hear China blamed for Nike’s financial results, despite their China revenues increasing year-over-year while North America was revenue was down year over year.

After a nearly 40% rise into overbought territory, China growth stocks have fallen -15%. After the challenging three years, this pullback feels a lot worse to me. There are positives on the horizon, with the first the big economic meeting “The Third Plenum”, which starts on July 15th. Expectations are very low, though I am more optimistic.

The 6.18 (June 18th) e-commerce event had steep discounts, which led to year-over-year merchandise sold declines though the number of goods sold likely increased. These sales will show up in Q2 financial results when reported in August. The fundamentals of the companies are improving!

Alibaba will convert its primary listing to Hong Kong in August. This could allow for Southbound Stock Connect inclusion in September. Tencent has 9.5% ($43 billion) of its shares held by Mainland investors via Southbound Stock Connect. Meituan has 13%/$12B of its shares held by mainland investors.

Mainland buying of Hong Kong-listed stocks continues with $47 billion worth of net buying via Southbound Stock Connect overnight. This exceeds the $40 billion worth of net buying in 2023. Why are these investors buying?

China internet and growth companies are buying stock and paying dividends. If China’s economy was collapsing, why would the companies be buying back stock? If the companies’ prospects were so bleak, why would they be buying back stock? They would be hoarding cash! The founder of nearly every KWEB company is the CEO or Chairperson. Why do they care about the stock? Because their net worth is in the stock.

The Hang Seng and Hang Seng Tech indexes diverged to close +0.01% and -0.96%, respectively, on volume that decreased -5.12% from yesterday, which is 96% of the 1-year average. 250 stocks advanced while 216 stocks declined. Main Board short turnover declined -15.88% from yesterday, which is 82% of the 1-year average, as 15% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). The value factor and large caps outperformed the growth factor and small caps. The top-performing sectors were Energy, which gained +2.98%, Industrials, which gained +2.44%, and Materials, which gained +2.28%. Meanwhile, Health Care fell -1.35%, Consumer Discretionary fell -1.26%, and Consumer Staples fell -0.95%. The top-performing subsectors were energy, foodstuffs, and utilities. Meanwhile, retail, insurance, and diversified financials were among the worst-performing. Southbound Stock Connect volumes were light as Mainland investors bought as net $468 million worth of Hong Kong-listed stocks and ETFs, including China Mobile, China Construction Bank, and ICBC, which were small net buys.

Shanghai, Shenzhen, and the STAR Board diverged to close +0.73%, +0.25%, and -0.46%, respectively, on volume that increased +12% from yesterday, which is 84% of the 1-year average. 3,299 stocks advanced while 1,641 declined. Value and large caps outperformed growth and small caps. The top-performing sectors were Energy, which gained +2.47%, Utilities, which gained +1.95%, and Industrials, which gained +1.17%. Meanwhile, consumer staples fell -1.27%, real estate fell -0.90%, and health care fell -0.83%, to make up the worst-performing subsectors. The top-performing subsectors were precious metals, oil & gas, and aerospace. Meanwhile, securities, liquor, and software were among the worst-performing. Northbound Stock Connect volumes were light/moderate as foreign investors were small net buyers. CNY managed a small gain versus the US dollar. The Treasury curve flattened slightly. Copper gained while steel fell.

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Last Night's Performance

Last Night’s Exchange Rates, Prices, & Yields

  • CNY per USD 7.27 versus 7.27 yesterday
  • CNY per EUR 7.78 versus 7.78 yesterday
  • Yield on 1-Day Government Bond 1.30% versus 1.30% yesterday
  • Yield on 10-Year Government Bond 2.21% versus 2.21% yesterday
  • Yield on 10-Year China Development Bank Bond 2.35% versus 2.36% yesterday
  • Copper Price +0.24%
  • Steel Price -0.39%
China Market Update: What’s On The Horizon For China Stocks, Week In Review (2024)

FAQs

Will China shares recover? ›

The rebound in Chinese stocks is set to extend as the gains spread to segments that have trailed the market recovery. The 29% surge in the MSCI China Index since a January low has pushed about half of its members above their 200-day moving averages, data compiled by Bloomberg show.

Why are Chinese stocks going down? ›

But Chinese stocks face significant headwinds from a slowdown in the world's second-largest economy, which is suffering from a property crisis and stagnating consumption.

Is the China stock market undervalued? ›

Furthermore, according to Morningstar's Global Market Barometer, Chinese equities are currently undervalued by 31% relative to fair value (relative to stocks covered by Morningstar's analysis).

Why are Chinese stocks so cheap? ›

China's well-documented economic struggles have led to broad declines in its stock markets over the past year, as growth was weighed down by a slump in real estate and exports. The Chinese government is targeting 5% growth in 2024, having notched 5.2% in 2023.

What is the outlook for the Chinese stock market? ›

Laura Wang: We see a largely range bound market at best in our base case for China equity market at the index level. For example, our price target for MSCI China by end of 2024 is 60, suggesting very limited upside from its current level.

What is the forecast for China share? ›

The China Shanghai Composite Stock Market Index is expected to trade at 2927.35 points by the end of this quarter, according to Trading Economics global macro models and analysts expectations. Looking forward, we estimate it to trade at 2734.19 in 12 months time.

What is the best Chinese stock to buy right now? ›

Comparison Results
NamePricePrice Change
NTES NetEase$96.46$0.88 (0.92%) Pre 1.12%
BIDU Baidu$86.21$0.27 (0.31%) Pre 0.48%
NIO Nio$4.44$0.28 (6.73%) Pre 1.13%
BILI Bilibili$15.29$0.15 (0.97%) Pre 0.78%
5 more rows

Is China a good place to invest right now? ›

A low correlation with other major world markets also makes it a great diversifier. However, there are concerns about China's mounting debt, the overall sustainability of its economic growth, and the country's political policies. These types of risks will prove off-putting to many.

Is it the right time to invest in China? ›

There's no hiding that China has seen a structural slowdown in growth, but with the valuation picture right now and looking at the next five to ten years, this could prove an attractive entry point. But still, investors should be prepared to ride out the ups and downs.

Which country has the cheapest stock market in the world? ›

Meanwhile, the Israeli stock market has become the cheapest in the Western world, creating investment opportunities. These are the views of Ori Keren, chief investment officer at More Provident Funds, given in a webinar for investors held recently by Karni Family Office.

Why investing in China is good? ›

Access to a large domestic market as well as proximity to the growing south and south-east- Asian countries to implement the China+1 strategy; and. Numerous EDZs, FTZs and super city clusters, workforce and labor availability, lower labor costs and a relatively open environment for foreign direct investments.

What stocks is Ray Dalio buying? ›

These AI stocks are great picks for all investors
  • Starting with the biggest of these positions, Alphabet (GOOG 1.15%) (GOOGL 1.23%), Bridgewater has made it the third-largest investment overall in his portfolio. ...
  • Nvidia (NVDA -1.31%), the king of AI hardware, is a much harder stock to assess.
Jun 3, 2024

Is China still worth investing in? ›

In the short-term, a combination of stabilising fundamentals and attractive valuations give investors enough reason to consider an allocation to Chinese equities. Over a longer horizon, we believe China will remain an important cog in the global economy.

What is the investment outlook for China in 2024? ›

Key points. Key points: China's 2024 Q1 GDP reached 5.3%, higher than the consensus and 2023 reading 5.2%, making our 4.6% 2024 forecast easy to achieve which is subject to upside bias. However, the economic structure is significantly unbalanced, with the supply side much stronger than the demand side.

What is JP Morgan's forecast for China? ›

Our base-case GDP growth expectation for China is an average of 4.4% over 10 to 15 years, leading to high-income status (by the World Bank's definition) by 2034. Successful pursuit of economic reforms could steer China onto a somewhat faster growth trajectory; downside risk comes primarily from elevated leverage.

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