Aug 17, 2023

The Chinese stock market has recently experienced an influx of value investors from overseas. However, further concerns about the property sector have dampened the outlook.

CH50 – Weekly Chart

CH50: Weekly Chart

The last CH50 index outlook we shared was after a strong rally from support, and there was hope for a breakout above the downtrend resistance. However, the last two weeks have seen a potential break of support at 12,500, which is likely to lead to further losses.

The S&P 500 in the US fell 0.76% on Wednesday, and this is likely to weigh on Asian equities on Thursday.

Country Garden, China’s largest private real estate developer, has delayed payments on offshore bonds for the first time, raising fears of contagion. Zhongrong International Trust Co., a trust firm with significant exposure to real estate, has also missed repayments.

JPMorgan said on Monday that rising trust defaults could reduce China’s economic growth by 0.3 to 0.4 percentage points, and that it expects a “vicious cycle” of real estate financing issues.

Nomura said that the latest wave of defaults from wealth management firms on trust-related products is likely to have a significant ripple effect on the broader economy through wealth effects, in addition to the apparent financial risks and their transmission.

Country Garden, a Chinese property developer, is expected to repay more than 9 billion yuan ($1.25 billion) worth of onshore bonds in September, according to Reuters estimates.

Dickie Wong of Kingston Securities said the problems in the sector have been building for a long time, wiping out the wealth effect among investors and making property unattractive to buyers.

The recent underperformance of the Chinese economy has had a negative impact on the global economy, and a rate cut in China has had a knock-on effect on other markets. This week could see Chinese stocks test a key support level, and the index’s performance at this level will determine how the following weeks unfold.

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