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In March, Chinese onshore stocks were sharply lower as inflationary concerns combined with rising Covid-19 cases and renewed lockdowns in major cities. Externally, the broader implications of the Russia-Ukraine conflict, notably higher energy and commodity prices, disruption to global growth, and escalating geopolitical risks, have clearly hurt equity markets.
At home, Covid cases and lockdowns continue to cause disruption in several parts of China, depressing domestic consumption. Against this backdrop, we have encouragingly seen a slight shift in stance from policymakers, who recognise the need to underpin growth this year and stabilise the property market. The tightening of industry regulations also appears to have moderated.
If we were to see a decisive easing of liquidity to the property development sector and a pick-up in credit growth, possibly alongside a relaxation of certain industry regulatory scrutiny, then there is scope for sharply improved sentiment in the China market.
At the Two Sessions last month, China clearly stated that one of the main policy directions is "steady growth", including tax cuts, fee reductions, promotion of investment and consumption, stabilization of employment, and protection of people's livelihood. It is believed that the implementation of those measures is likely to give a boost to China's overall economic growth.
The Chinese equity market valuation is now back to the recent trough observed in March 2020 (Covid) and December 2018 (heightened US/China tension). Given all the current uncertainties, patience will be needed in the face of the risks. A-shares could, however, be more resilient owing to the robust domestic investor base. They are also well positioned to benefit from greater policy easing.
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