BCA says middling stimulus, US uncertainty sours China outlook

BCA Research flagged a negative outlook on Chinese markets with middling stimulus measures from Beijing and uncertainty over Sino-U.S. relations inspiring little optimism over the country’s prospects.

While the research firm still maintained a Neutral stance on China and emerging markets in Asia, it said that Beijing had missed an opportunity to overhaul its economic policy, which presented more near-term headwinds.

“China missed the chance to change course on economic policy and now it faces rising social instability and western protectionism. This policy approach implies it is not afraid of escalating strategic conflicts in East Asia. Investors should continue to underweight Greater Chinese assets,” BCA analysts wrote in a note to clients this week. 

The Chinese Communist Party held a slew of key meetings in July- the Third Plenum and the Politburo meetings. 

BCA said that neither the meetings, nor a 20-point plan to boost consumption stood to inspire investor confidence in the country. 

The research firm argued that China’s foreign policies were likely to grow hawkish in the near-term, which could further push away foreign investors and alienate the country, especially if the economy deteriorates further. 

A tight 2024 presidential race also presented more uncertainty for China, with recent polls showing Donald Trump and Kamala Harris polling neck and neck. 

BCA said a Trump presidency heralded more trade restrictions against China, while Harris was likely to pursue an appeasement policy with Beijing. 

“The bipartisan US policy consensus on China has not caused much economic pain for the Americans and therefore will persist for the coming years. This raises a high probability of US policy “over-correction” or aggression that could destabilize China,” BCA analysts wrote. 

BCA still has a Neutral rating on China and broader emerging markets in Asia. But the research firm has a Very Risky rating on the region with regards to geopolitical risk in the next 18 months.

China's Shanghai Shenzhen CSI 300 and Shanghai Composite indexes were nursing steep losses over the past two months, and were trading close to six-month lows as a slew of weak economic readings dented sentiment towards the country.

Source: Investing.com