Chinese stocks are likely to sell-off in the next two quarters as Beijing refrains from activating full-scale stimulus: BCA Research

China is trying to balance between staying the course on structural reform and stabilising growth, likely making any stimulus piecemeal in quantum

A sell-off will provide investors with a good buying opportunity in the expectation of a more decisive or forceful stimulus

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A man wearing a protective face mask touches the investment icon bull statue on display outside a mall in Beijing in March 2020. Photo: AP

Published: 4:20pm, 10 Dec 2021Updated: 5:08pm, 10 Dec 2021

Chinese stocks are likely to continue falling over the next three to six months as the near-term dynamics in the domestic economic cycle will have to significantly worsen before policymakers forcefully ramp up stimulus, according to BCA Research.

Investors should wait for the sell-off to run its course before picking up bargains when credit growth and investments, two major drivers of business activity, show meaningful recovery, it said in a report to clients.

The caution follows a week in which the Hang Seng Index and CSI 300 index rallied by as much as 3.1 per cent, adding back US$518 billion of capitalisation to the market. China’s central bank announced a cut in banks’ reserve-requirement ratio on Tuesday, effectively injecting 1.2 trillion yuan (US$188 billion) into the system.

Still, China’s “calibrated approach” to balance between structural reforms and economic stability means Beijing will only initiate piecemeal policy easing in the near term, strategists led by Sima Jing wrote in the report. Policymakers will only crank up stimulus if their pressure points are breached, they added.