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Is This The Beginning Of The End For Chinese Stocks? Here’s What 11 Top Analysts Have To Say
Perspective | 01 July 2015

After rallying more than 150 percent in the year through 12 June, it took just five trading days for the Shanghai Composite Index to enter a correction, and five more for the bear market to form.

With the central bank cutting lending rates and lowering reserve ratios on 27 June in an effort to revive investor confidence, where do we go now? Here are what 11 of the top analysts and investors in the industry have to say:

Source: Bloomberg

Wilmington Trust:

“A-shares will continue to fall, on the basis of sharply negative speculative sentiment, as well as on the Chinese Securities Regulatory Commission’s actions to control margin lending,” Clem Miller, an investment strategist at Wilmington Trust, which manages US$20 billion, said by e-mail 29 June.

“The Shanghai Composite reached its current heights over the last few months based on leveraged speculation involving many uninformed retail investors. I expect the composite to fall by about another 20 percent.”

Janney Capital Management:

“Chinese equities should do pretty well going forward,” Mark Luschini, chief investment strategist in Philadelphia at Janney Capital Management, which oversees about US$68 billion, said by phone 29 June.

“I don’t know at what level this correction may ultimately stop, but I think with the underwriting of the Chinese economy by the People’s Bank of China, Chinese officials don’t want to see the market nose down. They’ll do what it takes to push the market higher, and undoubtedly Chinese equities, post the correction, will work their way higher again.”

Marketfield Asset Management:

“Mainland A-shares could fall as much as 18 percent before bottoming,” Michael Shaoul, Marketfield’s chief executive officer, said in a 29 June report.

“Regarding the equity market itself the speculative rush into stocks would appear to have run its course, leading to a messy unwind,” Shaoul said. “We continue to find the offshore H-share market to be a much more reasonable way to play a recovery of the Chinese economy.”

China International Capital Corporation:

“We see limited room for further correction in the short term. The market worried about the position closing pressure of margin holdings and the negative impact on market sentiment, but the interest rate cut and targeted reserve requirement ratio cut in the weekend sent out a signal of continuous loosening and removed the worries on possible marginal changes in policies, which could stabilise the market,” CICC analysts led by Hanfeng Wang said in a 29 June report.

“Flexible money could start to position for a likely rebound.”

HSBC Holdings:

“Policy support could prevent further sharp market falls; yet investors will likely sell into the rebound to lower leverage,” Steven Sun, the head of Hong Kong and China equity research at HSBC, wrote in a 28 June note.

“We also think it would be premature to call an end to the policy-driven A-share rally, given the importance of the stock market in helping China’s state owned enterprises and key industries obtain much-needed financing, as well as the likelihood of more monetary easing.”

Bocom International Holdings Co:

“Large cap blue chips are still cheap, and their low valuation can be a good defense in the current market turmoil,” Hao Hong, Bocom’s China equity strategist, wrote in a note on 29 June.

“Our concerns are that the burst of the ChiNext bubble can create contagion onto other market segments, and the recovery of large cap blue chips will inevitably consume market liquidity bounded by a topping market cap/gross domestic product (GDP) ratio.”

Bank Of America Corporation:

Rate cuts will “temporarily halt a possible crash in the market – had the government not acted, a stampede might soon develop as margin calls force leveraged positions to unwind,” Bank of America Merrill Lynch strategists led by David Cui write in a 28 June note.

“Short-term bounce aside, we doubt that the latest cuts will trigger any sustained rally. There is still a small chance in our view that the bottom of the market may fall out in the coming weeks if enough investors conclude that the bull market is over – leverage is expensive so needs a consistently higher market to break even.”

Central China Securities:

“Panic selling will likely continue as margin investors are forced into liquidation and funds are forced into redemption after earlier heavy sell-offs,” Central China Securities strategist Zhang Gang said by phone 29 June.

“People are worried about further unwinding of margin positions.”

“One single policy change isn’t going to reverse the market trend,” Zhang said. “And if the market continues with deeper falls, we will likely see more supportive policies.”

Invesco:

“It seems like policy makers are more worried about the stock market than about the real economy,” Paul Chan, chief investment officer for Asia ex-Japan at Invesco in Hong Kong, said 29 June.

“The economy is slowing down and they are so much behind the curve in terms of easing. But as the stock market corrected, they jumped in, putting in all the policies. It gives people a sense of panic.”

Krane Fund Advisors:

“Ultimately if we could have a more pragmatic and incremental initial public offering schedule as well as the cutting back on the use of leverage, it is good for the stock market in the long run,” Brendan Ahern, chief investment officer at Krane Fund Advisors, said by phone 29 June.

“Why you want to invest in this market is the continued reforms of state-owned enterprises as well as that onshore equities will be included in the broader benchmark over time. The rationale for investment is still in place. We’re just working through some short-term issues.”

Marathon Asset Management:

“There could be a substantial correction with China because it’s had a huge run-up,” Bruce Richards, co-founder of the hedge fund firm Marathon Asset Management said in an interview on the television program “Wall Street Week” that aired 28 June.

“But in the long run, you have to figure out how you want to invest in China. There’s been lots of money to be made in US equity markets over the last many decades – the same exists in China.”


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