China bulls backload stock targets as post-pandemic optimism deflates, stimulus floodgates remain closed

HSBC Qianhai, Citigroup are among the latest brokers to join Goldman and Nomura in cutting stock targets as weak data and slow stimulus deflate expectations

Chinese manufacturing likely contracted again in June amid a slump in exports; Bank of America says China is likely to avoid a bazooka-style stimulus

Reading Time:2 minutes

The Bund Bull in Shanghai, pictured on February 28, 2023. Photo: Bloomberg

Published: 12:17pm, 29 Jun 2023Updated: 4:53pm, 29 Jun 2023

China bulls are pushing back their expectations for a rally in stock prices as the economy struggles and global funds turn away while policymakers in Beijing avoid opening the stimulus floodgates.

HSBC Qianhai this week trimmed its year-end index target for the CSI 300 Index by 6.5 per cent to 4,300 and lowered its target for the Shanghai Composite Index by 2.8 per cent to 3,500. Citigroup scaled back its Hang Seng Index target to 22,000, versus a forecast of 24,000 in February. UBS cut its MSCI China target to 72, versus 83 it made in January.

That further narrowed the upside potential for investors, who have shifted their focus to India and Japan in search of higher returns. The MSCI China Index tracking over 700 companies listed at home and abroad has tumbled 9.4 per cent in a US$146 billion rout during the past three months, its worst quarter since Beijing’s zero-Covid pivot in October.

Pedestrians walk past an HSBC branch at Pedder Street in Hong Kong’s Central district on May 5, 2023. Photo: Yik Yeung-man

“We have previously argued the market will be driven by fundamentals,” HSBC Qianhai analysts including Shenzhen-based Steven Sun said in a note to clients on Wednesday. “That has not played out yet, and the economic backdrop has gotten tougher.”

China’s post-pandemic recovery continues to disappoint, with manufacturing set to contract for a third month in June, according to economists before a government report on Friday. Beijing appears reluctant to roll out a larger stimulus package, Alpine Macro said in a report, while brokers from Morgan Stanley to Nomura and Goldman have reined in their stock and growth forecasts.

“Policy stimulus represents the biggest swing factor for the market in the second half,” James Wang, head of China strategy in Hong Kong at UBS. “That said, we believe overall investor expectations are not high,” limiting any potential downside surprise.