Stimulus measures will bode well for Chinese equities but proof of stronger growth is required before a lasting rally will materialize, according to HSBC Global Private Banking.
Thus far in 2024, China has introduced various stimulus measures to boost its economy which has a target growth rate of around 5 percent. It announced a surprise 50 basis point cut to its reserve ratio in January. State-owned entities like sovereign wealth fund Central Huijin Investment have also stepped up efforts to buy shares.
Still, HSBC Global Private Banking believes it will take a longer while before a sustainable rally materializes.
Sustainable Rally
According to a recent investment report by the bank, the stimulus measures in China could reduce downside potential and even create «some tactical upside», especially due to the low valuations. But the catalyst for a rebound will likely require real economic outcomes.
«But before markets can rally sustainably, we need to see this support translate into stronger growth, and this will probably take time,» HSBC said.
Asian Preferences
For now, the bank is overweight on India, Indonesia, South Korea and Japan within Asia. Overall, it is globally overweight on both stocks and bonds.
«Many of our readers will know that we have been putting cash to work selectively for more than 12 months and even brought the cash holdings in our model portfolios all the way down to zero in September 2023,» it said, highlighting moderated rate cut expectations and an improved US economic outlook as drivers for equity appetite.
