Chinese stocks do not require a rebound in property prices to achieve further gains, according to Hong Hao, partner and chief economist at Grow Investment Group. Contrary to the entrenched bearish consensus, Hong believes that cheaper property prices could enhance household spending power and savings, potentially channeling funds into the stock market as domestic confidence improves.
In a note to clients, Hong suggested that the rally in April and May might be a precursor to more significant gains. “Chinese stocks can rebound without a rebound in property,” he asserted. The Hang Seng Index, which includes the largest and most liquid stocks listed in Hong Kong, surged 21 percent from a low on April 19 to a high on May 20. This surge occurred despite the property market’s continued instability, with new home prices in 70 Chinese cities experiencing the steepest decline in nearly a decade.
Hong argues that falling property prices could increase household discretionary spending, potentially easing deflationary pressures and spurring an economic upturn. Despite Beijing’s ambitious 300 billion yuan (US$41.3 billion) relending facility for excess housing inventory, the property market has yet to show signs of stabilization.
Hong, who previously worked for China International Capital Corp and Bocom International Holdings, has a track record of accurate market predictions. He recommended buying Chinese stocks at the end of October 2022, just before a 54 percent surge in the Hang Seng Index. He also correctly predicted the 2015 market meltdown that resulted in a US$5 trillion loss.
His optimistic outlook aligns with recent positive forecasts from institutions like Societe Generale and UBS, even as concerns about China’s recovery and geopolitical issues persist. Trade friction and capital outflows remain challenges for Chinese stocks, particularly for companies dependent on exports. However, Hong noted that capital outflows have slowed significantly, indicating some investor confidence in the vast Chinese market.
Currently, Chinese retail investors are placing much of their savings into treasury bonds and higher-yield wealth management products rather than stocks, signaling that domestic investor confidence is still recovering. Despite these challenges, Hong remains optimistic, pointing to recent economic indicators such as a 3.7 percent increase in retail sales and a 7.6 percent rise in exports last month. These figures suggest that China’s economy is stabilizing rather than stalling.
In summary, Hong Hao’s analysis suggests that Chinese stocks have the potential for further gains even without a property market rebound. Cheaper property prices could boost household spending, redirect funds into the stock market, and help ease deflationary pressures, setting the stage for an economic upturn.
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