China Stock Rally Shifting Into Phase Two
The China stock market rally looks set to shift into phase two: featuring slower gains and higher volatility but a renewed focus on earnings and valuations, said Richard Tang, China strategist and head of research Hong Kong at Julius Baer.
In the past weeks, investors went on a “buy everything China-related” spree, but such indiscriminate buying tends not to last, and in the wake of market disappointment over a recent policy event, plus a few days of heavy profit taking, Tang noted. He thinks investors will consolidate their China exposure by selling names with weaker fundamentals and adding quality stocks.
Expecting more fiscal measures in the coming weeks, Tang recommends focusing on potential policy beneficiaries and stocks with attractive valuations. Investors should also cut down on property stocks, as the sector will take a longer time to recover regardless of policy strength.