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A sluggish recovery in China's economy is stoking concerns among strategists that the hyped-up policy stimulus will arrive too late and will be too little to shore up stock prices in Hong Kong, leaving the Federal Reserve to do the heavy lifting this week.
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Here's what economists and strategists say about the economy and the local stock market outlook.
The People's Bank of China building in Beijing, pictured on April 18, 2023. Photo: Bloomberg alt=The People's Bank of China building in Beijing, pictured on April 18, 2023. Photo: Bloomberg>
Kaiyuan Capital
"Reported optimism regarding Hong Kong equities seems unwarranted," said Brock Silvers, chief investment officer.
Stocks cannot look to the US for relief, as US inflation remains stubbornly elevated, he said. "Even a Fed pause may only bring a small psychological boost."
China's recovery seems to have stalled, and authorities are so far unwilling to mount an effective response, preferring a wait-and-see approach, Silvers said. These US and China factors should lead to a downbeat result for Hong Kong without even addressing worsening geopolitical risks, and "a rebound may be unlikely at least into 2024".
Nomura
The cut in reverse repo rate means the central bank "will almost surely" deliver a 10 basis-point cut in the one-year medium-term facility rate on June 15 and the loan prime rate on June 20, economists including Ting Lu said on Tuesday.
Still, they added, the impact of a moderate cut to benchmark lending rates will be quite small for two reasons: banks and capital markets have already adjusted rates for new lending, and for existing loans, any cut will only take effect on the first day of the following year.
"The risk of an economic double-dip is on the rise, in our view, and we believe Beijing still has to do more over the rest of this year," they said.
Nomura's equity strategists earlier this month downgraded their end-2023 fair value target for MSCI China to 67 from 75.3, after trimming its target multiple to 10.5 times from 11.5 times.
"The path to this target may be bumpy," they said, adding that near-term catalysts were lacking.
China International Capital Corp
The market will soon bottom out, and investors stand to gain if they load up on Hong Kong stocks, analysts including Kevin Liu wrote on Tuesday.