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Chinese lockdown exit is again showing positive effects, but there’s a twist

Autor: Article based upon analysis from Reuters Breakingviews | Link: Chinese equities need time to exit lockdown
Timp de citit: < 1 minute

Chinese stock exchanges have been on the rise in the last month, being among the best-performing in the world in this period.

But the same happened in the months from May to the end of July, meaning that just ending covid restrictions is not enough.

The average constituent of the blue-chip CSI300 onshore index is trading at roughly 12 times forward earnings, per Refinitiv, cited by Reuters.

Hang Seng China Enterprises Index, the benchmark reflecting the performance of mainland Chinese companies listed in Hong Kong, is at 5, while the S&P 500 is at 18.

Yet local currency returns including dividends from the CSI300 have been a tepid 6% since the pandemic began, compared to 42% from the S&P500. Hong Kong has delivered negative 18%.

Dragged down by uncertainty, share prices of companies listed on Chinese stock exchanges took a beating in the first four months of this year.

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The drop in share prices reflected, among other things, covid lockdowns, ongoing problems in the real estate sector, and uncertainty over government regulation, especially in the technology sector.

At the beginning of the summer, mainland China’s stock markets rebounded sharply, just when covid lockdowns in Shanghai and other big cities ended.

Also, the return of market confidence has been supported by government commitments to support the economy, stabilize the housing market and slow down the regulation of technology firms.

Now, harsh covid restrictions that provoked relief rallies in Hong Kong are being eased again, but a chaotic exit from lockdown is diminishing traders’ risk appetite.

Also, the unstable state of the property sector remains a wild card, since property comprises some 70% of household wealth in China.

So its decline, in the short term, adds to economic anxiety which is unlikely to spur equity investment.