Macroscope | Signs point to a Chinese stock market turnaround after two hard years

Recent policy announcements from the Chinese authorities on both Covid-19 policy and extending liquidity to the real estate market are not magic wands that yield immediate results. Patience is key as we await economic recovery. But this could be a critical turning point after the disappointing market performance in the past two years.

The Chinese equity market has been hampered by internal and external factors in the past two years. The economic slowdown in 2020 following the Covid-19 pandemic was by design, to avoid overheating. Yet this coincided with a rapid change in the regulatory environment in the technology sector, and tougher financial rules for real estate developers.

Then, in the second quarter of this year, stringent city lockdowns further dampened consumer and business confidence. All this has strained the economy. On the external front, the war in Ukraine, the risk of some Chinese companies being delisted from US exchanges and the tense US-China relationship have dampened international investor sentiment.

Investors have, however, seen a glimmer of hope in addressing some of these issues in the past few weeks. On November 11, the State Council announced a 20-point plan to fine-tune its Covid-19 policy, including reducing the quarantine period for inbound travellers, stepping up vaccination and preparations for medical facilities and medication.

These are necessary conditions to open up borders and facilitate the movement of people across provinces. It is interesting that this announcement comes as the number of infections is again picking up, especially in Guangdong province.