Chinese stocks are poised to experience significant gains in the near future as authorities signal their commitment to providing support. Marko Papic, partner and chief strategist at Clocktower Group, predicts that the Chinese stock market will climb by at least 10% in the coming days. This assertion is backed by Bloomberg’s report, which indicates that Chinese President Xi Jinping received a briefing from financial regulators about the recent stock market sell-off.

To bolster investor confidence, the Chinese securities regulator has issued various public statements, including announcements of state-backed purchases. Such efforts by the government to stabilize growth and equities demonstrate their commitment to both the stock market and the fundamental macroeconomy. Despite China’s initial reluctance to employ large-scale stimulus measures, tensions with the U.S., a slow recovery from the pandemic, and a decline in the real estate market have led to record-low consumer sentiment.

After hitting a five-year low on Monday, mainland Chinese stocks experienced gains and continued to trade mostly higher on Wednesday. Marko Papic believes that investor sentiment has potentially reached its lowest point, and he expects a 10% to 15% rally in Chinese equities in the upcoming trading days. This shift in perspective from Clocktower Group, which previously advised investors to refrain from bottom fishing, suggests that now might be an opportune time to engage in tactical plays.

While acknowledging the possibility of the recent rally being a dead cat bounce, Papic highlights the Chinese government’s willingness to support both stocks and the economy through fiscal policies. He believes that the government’s actions align with their long-term goals and demonstrate a move in the right direction. Clocktower Group, an alternative asset management platform, also aids in deploying foreign capital into China.

The market sell-off this year can be attributed, in part, to a mid-January meeting where Xi and other top Chinese officials indicated that they would focus anti-corruption efforts on the financial sector. Chinese stocks have yet to fully recover from the plunge that occurred in 2015 when similar interventions failed to achieve their intended goals.

As the Lunar New Year approaches, Chinese stock markets are set to close temporarily before reopening in mid-February. The extent to which Chinese authorities are capable and willing to act remains uncertain. Nevertheless, with the Chinese government signaling their support and efforts to stabilize the market, it is plausible to expect positive growth in Chinese stocks. Investors should closely monitor these developments and consider seizing potential opportunities in the coming days.

Finance

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