[Practical Finance] Avoid Overeager Entry... Experts Say "Timing May Come in September"

Can I Enter Now?
Liquidity and Other Positive Factors Gradually Weakening
COVID-19 Resurgence, US Presidential Election Variables
Target When Upward Momentum Weakens

[Asia Economy Reporter Oh Ju-yeon] The Chinese stock market has surged sharply this month, showing the most outstanding growth rate among emerging market stocks, but experts advise against chasing the rally recklessly. This is because, besides COVID-19, other infectious diseases are emerging that could affect economic normalization, and with the U.S. presidential election in November approaching, it is uncertain how U.S.-China tensions will unfold. Therefore, it is expected that a more favorable investment opportunity at a 'cheaper' level will come rather than investing at the current sharply risen level.

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Recently, as China-related exchange-traded funds (ETFs) have generated high returns in a short period, more investors are joining the rising trend in the Chinese stock market belatedly. The Chinese stock market is characterized by increased volatility once a direction is set and momentum builds. For example, during the 2006-2007 uptrend, the Shanghai Composite Index posted a maximum return of 427%, and in 2014-2015, it yielded a 145% return. Because of this, investors are judging that the Chinese stock market, which was weak last year, is finally changing direction and are actively investing. Individual investors have become busy buying Chinese ETFs. The TIGER China CSI300 ETF saw net purchases for five consecutive trading days starting from the 7th, accumulating KRW 18.075 billion worth by the 13th. The TIGER China CSI300 Leverage (synthetic) ETF was bought for KRW 9.95 billion during the same period. Previously, there had been consistent selling for 18 trading days, but the trend has reversed completely.

Some suggest that if investors want higher returns, it is better to enter at a more attractive price range than now. This is because it is time to consider how sustainable the positive factors currently driving the Chinese stock market are.

Moon Nam-jung, a researcher at Daishin Securities, diagnosed, "Even if the Chinese stock market rises further at this point, driven by liquidity and government willingness to support the market, investors should reduce their holdings when the market rises." This is because the emergence of other infectious diseases such as new swine flu viruses and plague following COVID-19 could slow the pace of economic normalization, creating an unfavorable environment for the continuity of third-quarter economic indicators recovery. Also, the current consumption improvement could halt again if COVID-19 resurges, which is a point to be cautious about. Furthermore, ahead of the full-scale U.S. presidential race in September, there is a high possibility that U.S. President Donald Trump will try to reverse the mood by spreading anti-China sentiment, which is also considered a risk factor.

Researcher Moon analyzed, "It seems that a phase where China can be invested in at a cheaper price than now will come in September, so investors considering investing in China should target this period."

Ahn So-eun, a researcher at IBK Investment & Securities, also warned that the positive factors driving the Chinese stock market, such as liquidity supply, policies, and indicator rebounds, may weaken over time. Researcher Ahn said, "Domestically, COVID-19 resurgence is being controlled in China, but externally, concerns about resurgence or a double-dip shock remain," adding, "In the second half of the year, China will rely on the domestic economy, but considering government debt levels and fiscal capacity, it may be difficult for stimulus measures and domestic recovery to become stronger than now." He continued, "The sharp rebound in economic indicators in March and April reflects a base effect due to the lifting of various lockdown measures," and forecasted, "The slope of future growth may weaken."