Although China is often deemed an unfavourable investment destination, it still presents trading opportunities. This is evidenced by the significant surge in the world’s second-largest stock market due to substantial government stimulus, which increased by 25% in a span of five trading days, moving from a 52-week low to a 52-week high in under two weeks.
However, it’s worth noting that Chinese shares continue to struggle, with the Shanghai CSI 300 index suffering over a 30% drop from its post-Covid peak in February 2021 and remaining virtually the same over the past half-decade.
The issue at hand is that Chinese stocks occasionally experience sharp increases, but they subsequently continue their downward trajectory. In a recent conference in Hong Kong conducted by Goldman Sachs, over 40% of respondents considered China unsuitable for investment. According to Goldman’s Timothy Moe, most global investors have withdrawn from China, only planning to return when a rally occurs.
In a recent market analysis report, JPMorgan’s Michael Cembalest acknowledges that Chinese valuations are currently on the lowest end of the ten-year scale, but remains convinced that China continues to be a trading environment rather than a long-term investment destination. For this perspective to shift, Chinese economic growth needs to benefit equity investors more.
Cembalest points out that since 2010, China has had the poorest transition from GDP growth to earning and investor profits. He asserts that the ‘Bric’ research results published two decades before completely missed the mark, stating that it’s impossible for investors to rely solely on GDP.