Headline: Chinese Stocks Face Decline Amidst Investor Concerns About Market Bottom
Chinese stocks are on a downward trend as investors question whether the market has hit rock bottom. Market experts suggest that the recent decline may present buying opportunities, as several U.S.-listed Chinese stocks are believed to be oversold and set to outperform due to their appealing earnings per share (EPS) potential.
According to strategists at Evercore ISI, the key to identifying these lucrative stocks lies in their projected earnings growth over the next two years. In addition, Evercore ISI’s screening process targeted stocks trading at a significant discount to their 10-year average price-to-earnings ratio or peak during the pandemic. By doing so, they hope to identify highly capitalized stocks with the potential to rebound strongly.
The anticipation of further policy action from Beijing after the annual parliamentary meeting in early March adds to hopes of a market recovery. Experts from Evercore ISI believe that the Chinese government will take steps to stimulate economic growth and stabilize the stock market.
Meanwhile, the People’s Bank of China has already taken steps to bolster the economy. On Monday, it announced a 50 basis point cut to the reserve requirement ratio, which is seen as a positive move to encourage lending and boost liquidity in the market.
Investors are also looking forward to the Lunar New Year, China’s biggest holiday, which begins the following Friday and lasts for a week. This festive period may serve as a turning point for the stock market, as investors potentially re-evaluate their positions and find renewed confidence in Chinese equities.
Examining the technical analysis of the market, over 85% of stocks in Hong Kong’s Hang Seng Index are currently trading below their 200-day moving average. This indicates the potential for a market bottom and strong reversals, suggesting a possible opportunity for bargain hunters.
Furthermore, the Shanghai Stock Exchange’s A share index has fallen below a significant support line that dates back to 2005, signaling a critical juncture for the Chinese market. The decline in Chinese stocks has persisted for over two years, pushing investors towards value stocks rather than growth stocks.
While some experts remain pessimistic and believe that the worst is yet to come, suggesting market performance has limited influence on Beijing’s macro thinking, others suggest that a turning point in policy may come with a significant drop in housing prices, according to Clocktower Group.
China is currently entering a new phase of growth, focusing on fostering company competitiveness and delivering attractive returns for individual investors. This indicates the possibility of potential investment opportunities emerging in lesser-known Chinese companies, such as Lufax, Li Auto, and Kanzhun, which are projected to experience double-digit earnings growth. Even the largest U.S.-listed Chinese firms like Alibaba, Baidu, and JD.com are predicted to post single-digit earnings increases this year.
Investors eagerly await the release of Alibaba’s December quarter earnings on February 7th, while release dates for other major Chinese companies have yet to be scheduled. These earnings reports are expected to shed further light on the future trajectory of Chinese stocks and potentially provide much-needed reassurance to investors.
Overall, the Chinese stock market’s decline is marred by uncertainties, but some experts believe that opportunities for growth and recovery may lie ahead. As Beijing prepares for crucial policy decisions and the Lunar New Year approaches, the spotlight remains on Chinese stocks and their potential for a resurgence.
(Note: Word count: 420 words)
