Bear Market Looms for China’s Equity Benchmark During Volatility

  • CSI 300 Index climbs, but still down 19% from a February high
  • Newspapers urge investors not to overreact to A-share selloff

China’s benchmark CSI 300 Index teetered on the edge of a bear market as the nation’s state media called for investors to hold their nerves in a global selloff.

Chinese stocks enjoy policy support and with looser liquidity conditions expected, corrections are buying opportunities, according to reports from papers including China Securities Journal and the Shanghai Securities News. The gauge rose as much as 0.9% on Wednesday after a slump in the previous session pushed it within striking distance of a 20% plunge from the February peak.

With Lunar New Year holidays next week and China hosting the Winter Olympics, the calls are indications of Beijing’s desire for stability. Chinese stocks have been battered along with other markets this year as traders position for U.S. rate hikes, though an increasing number of banks and money managers have turned bullish on China as it starts to ease polices.

Much like 2021, tech and property sectors have been among the hardest hit in the recent selloff, with a shift away from last year’s winners adding to market swings. The CSI 300 Index trimmed gains to 0.2% as of 11:18 a.m. in Hong Kong.

“Overall, a sense of caution prevails,” said Wai Ho Leong, a strategist at Modular Asset Management. This reflects “increased wariness given that we are entering a period of thinner liquidity over the Lunar new year. There is also a desire for more clarity over the policy response to perceived property default risks,” he said.

The last time the gauge entered a bear market was in 2018, when investor concerns about China’s trade war with the U.S. took a toll on equities.

Turning Bullish

The CSI 300 is approaching the grim milestone just as bullish calls on Chinese equities are growing.

Deutsche Bank AG’s international private banking unit last week upgraded China A-shares and H-shares to overweight from neutral, betting that the diverging policy paths between the Fed and the People’s Bank of China will benefit the Asian nation’s economy and stocks.

Earlier this month, Jefferies Financial Group Inc. strategists turned bullish on Chinese stocks, saying they’re due for a rebound after getting hammered by a year of regulatory crackdowns and a slowing economy.

Meanwhile, omicron outbreaks in China have also soured sentiment toward equities after the CSI 300 last year capped its worst annual performance since 2018.

Battered by Beijing’s clampdown on tech giants and debt troubles in the real estate sector, Hong Kong’s Hang Seng Index has already been in a bear market since August.

Author: Abhishek Vishnoi, Bloomberg

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