It’s not too late to enter China’s rally: HSBC By Investing.com

Investing.com — Chinese policymakers have recently introduced a series of measures to stimulate monetary, fiscal and stock markets.

The move sent the stock up 28% over the past two weeks, prompting some investors to wonder if the opportunity has passed. However, HSBC strategists believe it is still not too late and have upgraded the Mainland China market to Overweight.

The bank’s analysis of 30 historical rallies of more than 10% in China since 2005 indicates that, on average, such rallies last 76 trading days, with gains of around 38%. In at least 25% of these cases, the increase approached 60%.

“Chinese valuations remain attractive, trading at an 18% discount to emerging markets versus 5% historically,” strategists said in a note on Thursday.

“Our machine learning valuation model also suggests that Mainland China is still 15% undervalued based on fundamentals,” they added.

Additionally, investors are currently underweight Mainland China by 230 basis points, placing them in the bottom 10th percentile relative to historical benchmarks. This signals the potential for more future market entries.

Sector-wise, HSBC’s strategies favor growth sectors such as consumer discretionary and information technology, as well as beneficiaries of state-owned enterprise reforms such as telecommunications and high-dividend-yielding stocks.

But while the stimulus is a positive sign, sustained policy support in the coming months will be crucial to changing investor sentiment, the investment bank points out.

Since 2021, follow-through, particularly on fiscal policy, has been lacking. However, HSBC believes that the tone of decision makers may be different this time.

It also warns that the rapid pace of the current market rally may not be sustainable, with a potential pullback likely before momentum returns to a slower pace.

Another risk factor highlighted by HSBC is the upcoming US election, with concerns about potential tariffs, particularly Trump’s proposed 60% tariff on Chinese imports.