By Rae Wee and Summer Zhen
SINGAPORE (Reuters) – September data from China offered plenty of welcome surprises, with faster-than-expected growth, falling unemployment and a glimmer of momentum in consumption, but investors are not rushing to buy into the story.
China’s blue-chip stocks, down nearly 7% this year, compared to a gain of almost 10% for world stocks, were unmoved by the news and fell on Wednesday by another 0.8%.
The yuan struggled to hold a small bounce, as buyers’ hands were stayed by concerns ranging from the crisis in the property sector to dim prospects for an acceleration in growth.
“Just the Q3 growth data today is not yet enough to turn market sentiment around,” said Chi Lo, a senior market strategist for Asia-Pacific at BNP Paribas Asset Management in Hong Kong.
“If we see continued and broader easing filtering into growth and companies earnings in Q4, investors will come back.”
Official data showed the world’s second-largest economy grew 1.3% in the third quarter, above markets’ forecast of 1%, to seemingly cap a season of disappointment. Year-to-date growth of 5.2% is on track for China’s full-year target of 5%.
Yet property remains a millstone for growth and confidence and while the economy may have touched bottom, there are no signs of the sort of rapid rebound that would compel investment.
Property investment in the first nine months of 2023 fell 9.1% on the year. The grace period for a late coupon payment on a dollar bond issued by China’s biggest developer, Country Garden, also expired without word of payment.
“It’s not just about the opportunities in China,” said Tai Hui, APAC chief market strategist at J.P. Morgan Asset Management, adding that other factors included the performance of markets elsewhere and new risks to the safety of capital, amid wars and Sino-U.S. tension.
“Unless China markets significantly outperform the benchmark … that actually makes the decision of underweight China very easy – I think (investors) may still take a lot of convincing to get back in.”
BOTTOMS UP
In recent months, China has unveiled measures to revive its sinking stock market, from cutting trading costs to spurring margin financing and protecting small investors.
But the effort was not enough to shift deeply negative sentiment, money managers said, suggesting that a turnaround in economics and earnings was key. Now there are signs that has begun, but it only seems to be stoking further doubt.
“The improvement in Q3 economic data makes it less likely for the government to launch stimulus in Q4,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management in Hong Kong.
“The focus of the government and the market will shift to the growth outlook for next year … what growth target the government will set and how much fiscal easing will take place.”
Some bargain-hunters are enthusiastic, and point to a price-to-earnings ratio of 12 for the Shanghai Composite versus 22.3 for the S&P 500 as a signal to buy.
“It comes back down to how the China market works,” said said Steven Luk, chief executive of FountainCap Research and Investment
“When times are good, the Party gets a little fidgety and wants to make sure that they still have a few controls, so they intervene,” he said, referring to the ruling Chinese Communist Party.
“But when they do that, business confidence lowers … so they will take a step back and then things will just start to recover again.”
Rasmus Nemmoe, a portfolio manager at FSSA Investment Managers, said he took advantage of “weak market sentiment” towards Chinese consumer companies to buy shares in Chongqing Brewery.
Still, a survey of more than 250 fund managers by Bank of America before the growth data was issued on Tuesday, showed investors worried things could still get worse.
“A sustained lack of concerted easing has caused fatigue and frustration to take over,” BofA analysts said, with only a quarter of respondents having built or building exposure, and the rest looking elsewhere or unconvinced.
(Reporting by Rae Wee and Tom Westbrook in Singapore, Summer Zhen in Hong Kong and Padraic Halpin in Dublin; Editing by Clarence Fernandez)
