May 11, 2023

Chinese stocks have faced a rocky start to the year as investors pull back their expectations for a swift recovery. However, some are looking to the earnings season for a boost in the CH50 index.CH50 – Weekly Chart

CH50 – Weekly Chart

The price of the CH50 has dipped again every week and has found resistance at the 50-moving average. A bearish close for the week could lead to weakness in stocks. 

On the economy, China’s trade figures for April were mixed, with exports improving but imports falling, raising demand concerns. 

China’s dollar trade surplus grew from $88.19 billion to $90.21 billion in April versus a forecasted $71.60 billion. Importantly, imports slumped 7.9% year-over-year versus 1.4% in March. Exports rose by 8.5% versus 14.8% in March. The trade figures were given more importance after the country’s manufacturing sector slowed down, raising fears over the recovery.

The earnings season will likely boost Chinese stocks, with JD.com releasing earnings this week and Alibaba next week. Emerging markets fund Vontobel believes that will be the case. 

“We believe earnings have troughed, so the recovery should be relatively broad-based,” said Thomas Schaffner, co-manager of the $4 billion Vontobel Fund. He added that China’s earnings growth should be around 20% this year as the economy recovers, which would outpace many other countries. 

The widely anticipated rebound in China’s reopening rally has stumbled, with US-China tensions weighing on the growth outlook and demand for stocks. The surprise slowdown in the manufacturing sector suggests some economic weakness despite the relaxation of virus rules. 

Schaffner added that the first-quarter results for Chinese stocks were hit by a weaker January as the country started to exit its lockdowns. The “second-quarter economic data should actually start to look better”, with earnings growth boosting the market. 

Foreign investment funds became net sellers of Chinese stocks in April. The MSCI China Index fell around 5% last month, marking its worst April performance since 2004. 

Vontobel said they were exploring electric vehicle supply chain companies for investment, including car manufacturers.

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