Too early to bet on a rebound in China stocks – Alpine Macro By Investing.com

Investing.com– Chinese stocks are unlikely to see a sharp rebound in the near term, analysts at Alpine Macro warned, citing growing concerns about the sluggish growth outlook and lagging political support from Beijing.

The investment research firm warned that China’s economy was gradually grinding into a “slow-motion implosion”, with weak private spending and a lack of immediate action by policymakers likely to exacerbate the trend.

Both indexes and China fell to more than six-month highs in recent sessions amid lingering concerns of a slowdown. Chinese stock markets have also largely struggled to keep up with their Asian peers as foreign investors have become more wary of the country.

“The overall stock market appears to be rallying around a broad low, but a major breakout is unlikely unless the government begins a large-scale stimulus program, which does not appear to be on the books,” Alpine Macro analysts wrote in -a dated note. until tuesday.

Alpine Macro reported a “disturbing” deterioration in money and credit figures in the country, pointing to weak private and business spending. The investment firm said policymakers had played down the warning signs and recent bond issuance by the government to address the funding shortfall had also lagged behind.

“It is now almost impossible for Beijing to meet its 5% GDP growth target for 2024. In fact, if history is any guide, the contraction in monetary aggregates portends a sharp slowdown in economic growth going forward,” Alpine Macro analysts wrote .

China’s economy grew less than expected in the second quarter, missing the government’s 5 percent target, as private spending fell while deflation persisted.

Alpine Macro compared China’s slowdown to a stagnation seen in the Japanese economy since the early 1990s – a stagnation from which the country is still struggling to emerge. Beijing appeared to be making the same mistakes Japan made in the 1990s when the government dragged its feet in implementing countercyclical measures.

Alpine Macro said it plans to maintain its long positions in Chinese stocks and that falling interest rates should provide some impetus to local markets. But the firm warned there was “no case for a sustained market” in China unless the government implemented drastic measures.

However, based on a similar trend seen during Japan’s “lost decade”, Alpine Macro said Chinese value stocks should outperform even if growth deteriorates. But the firm recommended a defensive stance for Chinese portfolios.