China saw a reversal of fortune this week against global peers as investors tiptoed into the market, betting an expected lift of the Shanghai lockdowns would spur a rally.
China's benchmark CSI 300 Index rose 2% this week, standing out within a global sea of red. It has also outperformed major peers for the month. China has a stabilizing Covid-19 outbreak which has helped soothe fears that movement restrictions may intensify, which has sparked a turn in sentiment.
The outlook remains highly uncertain, with China's Zero Covid stance set to keep pressing growth and the global economy looking fragile, the stimulus promises from Beijing and cheap valuations are making more traders willing to take risks.
"We don't get so greedy as to try to time the market for the rock bottom," said Yang Wei, a fund manager at Longwin Investment Management Co. Yang, who has been building back equity positions since late March, said that valuations for some are now attractive enough to take the chance.
The CSI 300 Index had its worst January-April period since 2008 with a 19% loss, hammered by lengthy lockdowns in major cities and the Federal Reserve's aggressive rate hikes. The Chinese benchmark fell the least among the major national indexes this month. The tech-heavy ChiNext Index just had its best week in a year.
The number of community cases in Shanghai has declined to near zero, which is a threshold for the city to lift its harsh lockdowns. The goal is to achieve that goal by May 20. On Friday, the authorities denied that the capital would be locked down.
The drumbeat of policy-stimulus promises has kept market hopes alive, even as skeptics bemoan lack of concrete action. The Politburo meeting of the Communist Party in late April reaffirmed support to reach a 5.5% growth target for this year.
The roughest patch for China's economy may have passed, with the impact of Covid slowly diminishing in Shanghai and beyond, said Fang Lei, chief research officer at Beijing StarRock Investment Management Co. Ltd. The reverse is worth looking forward to when economic figures start to stabilize. Any recovery in the market will be bumpy, as seen in the short-lived rebound in mid-March.
The tense post-lockdown rally of 2020 may no longer be repeated. The highly-infectious omicron variant in China means businesses are facing a persistent threat of shutting down orders. On Monday, China will report its weakest monthly economic indicators since the outbreak of the epidemic two years ago.
Blackrock Inc. recently abandoned its bullish stance on China. Morgan Stanley said Chinese stocks are nearing the late stage of a bear market, but is yet to reverse its downbeat view.
The yuan has declined about 6% versus the dollar over the past month as the Fed tightens its weighs on emerging market assets. Overseas investors offloaded 9.7 billion yuan worth of onshore stocks in May through Friday, after adding 6.3 billion yuan in April.
The traders worried about losing a potential rally are jumping on the bandwagon. The value of leveraged trades in China has started to pick up after falling in all but one day in April, a sign of budding risk appetite.
Technical support levels show investor pessimism is at its nadir, said Ernie Diaz, director at Tirith Capital Ltd. We believe that lockdown policies will be able to address the slowdown once the decision is made. Now is the time to look for value. Nothing Happened When a Wall Street Investment Giant moved to Nashville?
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