China stocks are bull traps as market regulators' pain threshold remains untested: BCA Research

Chinese stocks, underweight in March

Investors should avoid Chinese stocks for now because more losses are likely to unfold over the next six to 12 months, according to BCA Research. The fallout from its regulatory actions in the technology and private education sectors has not tested the policymakers’ pain threshold, it added.

“More than a week of stock sell-offs will be needed for policymakers to halt reforms,” strategists led by Sima Jing said in a report to clients on Wednesday. “Furthermore, even if the pace of reforms eases and policymakers start to reflate the economy, it will likely take between six and 12 months for stock prices to find a bottom.”

BCA, which correctly told clients to go neutral on Chinese stocks in January and underweight in March relative to global benchmarks, said the country’s macro policy setting has shifted to allow a higher tolerance for short-term pain in exchange for long-term gain.

China’s economic policy has shifted from setting an annual economic growth target to multi-year planning, affording policymakers a higher tolerance for near-term distress in exchange for long-term benefits, they added. Despite a deep dive in stock prices, China’s bond and currency markets have been stable relative to the gyrations during the 2015 and 2018 market routs.

Mainland stocks suffered a US$434 billion slide in July, sparked by a cybersecurity review soon after ride-hailing firm Didi Global completed its US$4.4 billion listing in New York. In Hong Kong, investors took at US$752 billion drubbing. Combined, the US$1.2 trillion sell-off was the most since January 2016, according to Bloomberg data.

Still, the side-effects on the broader economy remain insignificant. A slowdown in economic activity appears to be within the policymakers’ comfort zone, the strategists at the Montreal-based research firm added.

The current crackdown may stem from China’s aim to become a “great modern socialist nation” by 2049, leading to a shift in policy from wealth accumulation to fixing income inequality and social welfare for average households.

The objective is not only to close regulatory loopholes and stem disorderly expansion of capital and market shares, but also assign a larger weight of social equality and responsibility to the private sector’s business practices.

The pace in achieving this overarching goal will only moderate when China’s economy and financial markets show significant signs of stress, according to the report. Even if the pace of reforms eases and policymakers start to reflate the economy, it will likely take between six and 12 months for stock prices to find a bottom.

Investors will be kept on edge by a confluence of a slowing economy and heightened regulatory oversight. The market will oscillate between technical rebounds when macro policy eases and sell-offs when industry regulations tighten.

“Investors should resist the urge to buy on the dip,” they concluded.

News Related

OTHER NEWS

For The First Time, Learn How to Create a Facebook Lead Ad Campaign

It can be intimidating to develop a Facebook Lead ad if you’ve never done it before. You’ll discover how to make your first lead ad campaign in this article. You’ll ... Read more »

Bad bank plan a welcome step, expect a gap-up opening for Bank Nifty tomorrow: Experts

The Union Cabinet’s decision to approve a government guarantee of up to Rs 30,600 crore for security receipts to be issued by National Asset Reconstruction Company Ltd (NARCL) is a ... Read more »

World Bank discontinues Doing Business reports — bank's statement

In June 2020, data irregularities on Doing Business 2018 and 2020 were reported Read more »

As Virat Kohli steps down as T20I captain, a look at what happened to brand Dhoni without captaincy

Virat Kohli Surpasses MS Dhoni To Register Most Test Wins As India Captain (Image: Reuters) The Board of Control for Cricket in India (BCCI) on Thursday announced that Virat Kohli ... Read more »

Avigna Industrial & Logistics Park to invest Rs 500-600 crore to develop a warehousing project in Karnataka

Expanding its industrial warehouses in the country, Avigna Industrial and Logistics Park, has ventured into Hoskote in Karnataka, with a 4 million sq ft Grade A warehousing facility and will ... Read more »

Yamal's gas production capacity 25% above planned — governor

At the same time, Dmitry Artyukhov continued, it is not clear whether gas production will grow next year Read more »

Ahmedabad Airport to be closed for runway repairs from January - May 2022

Sardar Vallabhbhai Patel International Airport, Ahmedabad. Image source: ANI Sardar Vallabhai Patel International Airport could be closed from 3rd January 2022 till May 31, 2022, from 9 am to 6 ... Read more »

How Picnic wants to conquer France and Germany with Bill Gates' millions

Just under two years after the previous investment round, online supermarket Picnic has again raised capital to continue growing. A group of old and new investors is investing 600 million ... Read more »

Gas price surge blamed for UK fertiliser factory shutdowns

Just a day after steelmakers reported disruption to production from soaring energy costs, it emerges that work has been suspended at two UK fertiliser plants. Read more »

A new defence alliance, fast fashion and the future of AI technology

Listen to “A new defence alliance, fast fashion and the future of AI technology.”. A new defence alliance could be a big financial blow for France – as Britain, the ... Read more »

Tobacco giant Philip Morris clinches shareholder backing for inhaler maker Vectura

PMI says the takeover is part of its "beyond nicotine" strategy and aim to become a "wellness" company - but critics fear it could see big tobacco wielding influence over UK health policy. Read more »

ASOS boss sets out sustainability goals

Read more »

John Lewis charters ships to navigate Xmas supply disruption and warns on price pressures

The retailer is no stranger to the sector's supply chain and hiring challenges in the run-up to the crucial Christmas season that seems set to see consumers facing tough spending choices as prices rise. Read more »

Fossil fuel firms sue governments across the world for £13bn as climate policies threaten profits

The majority of the cases are being brought under the Energy Charter Treaty, and are being hosted within the International Centre for The Settlement of Investment Disputes, a branch of the World Bank. Read more »

Why investors in three FTSE 350 firms are cheering the AUKUS security pact

Sky's Ian King says shareholders of Rolls-Royce, BAE Systems and Babcock clearly see hope of lucrative work arising from the sharing of information and resources under the deal. Read more »

Expert: Second Arktika-M satellite launch to assure entire Northern Sea Route coverage

The first special Arktika-M satellite was launched in February 2020 and another such satellite will be launched in 2023 Read more »

Defence Ministry issues SOP for faster verification of bank guarantees during acquisition process

Defence Minister Rajnath Singh The Defence Ministry on Thursday issued a standard operating procedure (SOP) that induces clarity in the steps a buyer has to take to verify bank guarantees ... Read more »

US market will surpass India's in the near future: MPL's Sai Srinivas

Indians love playing games on mobile phones, and home confinement during the pandemic has accelerated the trend. This has triggered a boom that helped Mobile Premier League (MPL), India’s latest ... Read more »

Google, Apple fail to explain their position to Russian senators

According to Deputy Head of Roskomnadzor Vadim Subbotin, the Apple representative was unable to explain the motive of the company’s actions and the Google representative had no power of appointment, so he was not questioned Read more »

Primark vows to make all clothing from recycled or 'more sustainable' materials by 2030

The fast fashion giant also promised to halve emissions, but environmentalists fear the plans are too light on detail. Read more »

Energy watchdog warns on 'record' prices as two more household suppliers fail

Ofgem warns households that gas prices are likely to be "high for some time" as an energy crunch threatens to push up bills further for customers whose fixed tariff deals are expiring. Read more »

NARCL a game-changer for India's bad debt resolution

The banking sector in India has played a pivotal role in the growth and development of the economy. By mobilising deposits and facilitating seamless credit flows, the banking sector is ... Read more »

Damian Lewis recalls filming on the day of 9/11

The Billions star is raising money with BGC in remembrance of the colleagues who were killed during the 9/11 attacks. Read more »

UBS Principal Capital Asia sells IndusInd Bank's shares worth Rs 354 crore

(Image: PTI) UBS Principal Capital Asia Ltd on Thursday sold IndusInd Bank shares worth nearly Rs 354 crore through an open market transaction. Bulk deal data with the BSE showed ... Read more »

9/11 anniversary: City veteran reflects on loss of colleagues

Read more »

Why are there supply shortages in UK?

There is estimated to be a shortfall of around 100,000 lorry drivers - triggered by an exodus of foreign nationals during the pandemic and post-Brexit immigration rules, which is affecting stock levels in supermarkets and fast food chains. Read more »

'The upper reaches of society are going to have to pay' - Sorrell

Read more »

'You can't keep raising business taxes without consequences' - CBI

Read more »

'Inevitable' that prices will rise - Wagamama owner

Read more »

'Major job losses' on the way at travel firms

Read more »

Vacancies are at a record high: Which sectors have the biggest gaps to fill?

Official figures show which parts of the UK economy have the highest and lowest rate of vacancies across their workforces and where the gaps have opened up most quickly - with hospitality and transport among them. Read more »

Fears people will 'struggle to get Christmas presents for their children' amid supply chain woes

Sky's Paul Kelso writes that the government has delayed introducing Brexit customs checks to stop the current global supply chain squeeze becoming a crisis. Read more »

West Midlands 'developing a real cluster sector'

Read more »

M&S blames Brexit as it axes 11 French high street stores

The retailer said supply chain complexities under new trading rules now made it "near impossible" to serve fresh and chilled products to its customers in France to the expected standards. Read more »

Goldman boss credits Birmingham talent for investment

Read more »

Households urged to act on bills as fire adds to leap in power costs

As the £139 hike in the energy price cap prepares to take effect, families are being told time is running out to secure a fixed-price deal that will better protect them from what is likely to come. Read more »