4 Key Factors Driving Expectations for the Deeply Slumped Chinese Stock Market

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[Asia Economy Reporter Hwang Junho] As the Chinese stock market has faced a sharp price adjustment phase since the beginning of this year, there is a forecast that various positive factors may emerge starting this month until before the second half begins, even from the worst situation. Researcher Kim Kyunghwan of Hana Financial Investment made this observation in the China Weekly report on the 15th.

The most immediate factor to expect is the lifting of the COVID-19 lockdown in the Shanghai area of China. The number of new COVID-19 cases in China (6th Omicron wave) exceeded 85% in Shanghai, but the confirmed cases in Shanghai have clearly shifted to a downward trend since the end of April. From late this month, it is expected that the real economy recovery will gain momentum starting with school reopening and corporate production. The nationwide average of the freight truck transportation volume index, which objectively shows the lockdown shock, fell to -26.3% compared to the same period last year at the end of April, but on the 9th of this month, the gap began to narrow to -17%.

Also, the effects of economic stimulus measures (fiscal policy) and infrastructure investment are likely to become evident starting this month. Seventy percent of the 2.1 trillion yuan of local government bond issuance in the 4th quarter and 1st quarter was invested in infrastructure. The infrastructure investment growth rate in the first quarter of this year increased by 10.2% compared to the previous year.

The pressure for yuan depreciation is also expected to pass its peak within this month. The sharp weakness since the 20th of last month was influenced by the strong dollar and the inversion of the US-China interest rate differential, but the loss of resilience shown in a similar environment in the first quarter of this year is ultimately analyzed to be due to the Shanghai lockdown shock.

Furthermore, if the US decides to reduce high tariffs on China, the existing uncertainties are expected to decrease significantly. US inflationary pressures, supply chain bottlenecks, and the TTEP process increase the possibility of a phased reduction of high tariffs on China.

Researcher Kim said, "I evaluate that the recent Chinese stock market has sufficiently reflected domestic and international negative factors in terms of price and supply-demand," and added, "I believe the Chinese stock market will gradually reflect the resolution of internal negative factors (lockdown/real estate/exchange rate) and the effects of stimulus measures step by step in the current price and supply-demand situation."

This content was produced with the assistance of AI translation services.