Chinese Stocks on the Brink of Five-Year Low – Beijing, China – Chinese stocks are nearing a five-year low, last seen in February. The market is gripped by bearish sentiment due to weak earnings and a lack of economic recovery. The CSI 300 Index, a benchmark for Chinese stocks, fell 1.2% on Monday. This decline represents a drop of over 13% from its high in May, bringing the index close to levels not seen since early 2019. This downturn highlights the challenges the government has faced in reviving the economy and supporting share prices.
The market has seen short-lived rebounds driven by brief optimism, only to fall back to new lows. The government’s piecemeal stimulus approach has not restored confidence. Deflationary pressures, weak consumption, and a persistent property slump are diminishing hopes for a swift recovery. “The ongoing bearishness in Chinese stocks is largely driven by deteriorating short-term dynamics,” said Billy Leung, an investment strategist at Global X Management in Sydney. He added, “Unless we see a significant policy shift, especially regarding fiscal support for social welfare or housing, this sentiment could persist.”
Chinese Stocks on the Brink of Five-Year Low – Concerns Dampen Investor Confidence
Even long-time supporters of China, such as UBS Global Wealth Management, Nomura Holdings Inc., and JPMorgan Chase & Co., have recently downgraded the country’s equities.
They point to concerns about declining property-led demand, ineffective stimulus measures, and geopolitical tensions, especially with the upcoming US elections. This slump in equities coincides with a growing belief among global banks that China will not meet its 5% growth target this year. Economic headwinds are also affecting global commodity demand. For example, iron ore prices have dropped below $90 a ton for the first time since 2022 due to weak demand from China.
Earnings Decline and Weak Economy Weigh on Stocks
Earnings per share for the MSCI China Index decreased by 4.5% year-over-year in the second quarter. This marks the worst decline in five quarters. The contraction is partly due to weakening support from China’s eight largest tech firms. The CSI 300 Index is down nearly 7% this year, making it one of the worst-performing major indices globally and on track for a record fourth consecutive year of losses.
Valuation Remains Cheap, but Risks Persist
Despite the sell-off, some investors believe that Chinese stocks offer attractive risk-reward opportunities due to their low valuations. The MSCI China Index is currently trading at less than nine times forward price-to-earnings, while India’s emerging market rival is at 24 times. However, analysts warn that even leading Chinese companies may face ongoing challenges from the weak economic environment and uncertain prospects for improvement.
Source – Bloomberg
