Analysis-China's bad first half gets investors hopeful and interested
By Jason Xue and Tom Westbrook
(Reuters) — China's disappointing first half has the economy ripe for some help, and investors are preparing to ride an expected short-term wave of stimulus, even if structural problems look to hold back a sustainable rally.
The latest data this week showed an economy struggling for momentum in the second quarter. A post-COVID recovery is quickly faltering, with exports declining due to cooling demand abroad and a prolonged property market downturn sapping confidence.
The grim readings raised the spectre of China missing its modest 5% growth target for 2023, and spurred hopes of stronger stimulus measures after the upcoming July Politburo meeting of top Chinese officials.
«For China, it is 'bad news is good news' at the moment,» said Jun Bei Liu, portfolio manager at Tribeca Investment Partners in Sydney.
Liu expects to see increased stimulus targeting cyclical sectors, such as housing, and is more interested in the services sector in the belief that post-pandemic demand will eventually rise.
«I think the reopening trade remains intact, though slower than before. China is not an 'avoid'. (A) recovery is coming, albeit taking longer,» said Liu.
Even before the latest disappointing growth data, a slew of soft economic indicators had shown China's recovery was falling short, slamming the brakes on nascent stock market rallies. The benchmark CSI 300 index is now down 0.5% for the year, in stark contrast to the 16% rise in world stocks.
Foreign money has been leaving, with worries over China's cyber-security crackdowns and Sino-U.S. flaps over chips and rare metals adding to growth concerns.
Foreign investors sold 2.7 billion yuan ($374.47 million) of Chinese shares in the second quarter, many
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