While Chinese equity markets still managed to end in the green for the month, it lagged slightly behind global markets. The economy was steady and remained in strong form since the trough in Feb 2020, but the continued reduction in market liquidity had likely put a cap on the market upside. Over the month of April, CSI 300 was up 1.49% (2.71% in US$ terms), while the Shanghai Composite gained 0.14% (1.35% in US$ terms), the Hong Kong Hang Seng Index also rose 1.22% (1.32% in US$ terms).
A point of concern, especially in the Hong Kong market, was the Chinese authorities taking action against the tech companies in China, ordering them to rectify their ill practices in their businesses over antitrust matters and certain business segments going out of line. The announcements have sparked market concerns over these heavyweights, dragging down the market despite the overall strong economy and corporate earnings backdrop.
More importantly, expect both the Chinese fiscal and monetary policies to tighten this year. As a result, market liquidity have been limited recently, which ended in valuation compression for the high growth stocks. Henceforth, investors would need to look elsewhere to find sources of growth, surplus household savings built up over the course of the pandemic is potentially an untapped opportunity, where the catch-up in consumption spending could be a worthwhile investment idea. Overall, while valuations should stay low, we still expect positive returns for the Chinese market over the year on the grounds of continued recovery in the economy and corporation earnings.
