“As China enters a bear market, it’s become the No. 1 question on everyone’s mind: Is this just a dip, like when equities fell 17 percent in mid-2007 before skyrocketing to an all-time high, or the start of something a lot worse, like the selloff that would begin just three months later and wipe 72 percent off the value of the nation’s stocks?” Bloomberg asks.
Courtesy of StockCharts
Chinese stocks have surged over the past 12 months with the Shanghai Composite Index rising 152 percent and reached a 52-week high through June 12, and the market cap of Chinese stocks rose above $10 trillion for the first time ever, however stocks changed direction and recently suffered their biggest two-week plunge since December 1996 after falling over 20 percent and fell into a bear market on Monday.
With the latest market developments, where do we go now? Here are the opinions of top analysts in the financial industry.
HSBC Holdings Plc:
“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 June 28 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.”
Bank of America Corp.:
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 June 28 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.’’
Invesco Ltd.:
‘‘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 June 29. ‘‘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.’’
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 Sunday. ‘‘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 U.S. equity markets over the last many decades — the same exists in China.’’
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