Korea Investment Expects Greater China Stock Markets to Move Sideways in May, Lowers Trading Bands

Korea Investment & Securities predicted that the Greater China stock markets in May would show a 'sideways box range' trend, as both positive and negative factors are mixed. The expected band for the Shanghai Composite Index on the mainland was lowered to 3,150?3,500 points, while the band for the Hong Kong H-Index was set at 7,600?8,800 points.

On April 29, Lee Dongyeon, a researcher at Korea Investment & Securities, stated in the firm's monthly China strategy report, "May is a period with many factors that need to be confirmed." He added, "Although there are some signals that the seemingly endless US-China tariff conflict may be easing slightly, the possibility remains high that dialogue between the two countries will continue to progress very slowly." As a result, he forecast that economic growth would slow from the second quarter and that exports were also expected to show negative growth.

He noted, "Earnings estimates for both the mainland and Hong Kong stock markets have been revised downward compared to the previous month, which is a burden for the markets." However, he evaluated that "valuation pressure is not high, and the Chinese government's repeated emphasis on continuing its existing economic stimulus stance at the April Politburo meeting is a factor that supports the downside of the markets."

Accordingly, Lee predicted that the Greater China stock markets would remain in a box range in May, and he revised the bands for both the mainland and Hong Kong markets downward compared to the previous month. For May, he set the Shanghai Composite Index band at 3,150?3,500 points, lowering only the lower end from the previous month. He explained, "This reflects the downward revision of earnings estimates compared to last month, as well as the persistent uncertainty surrounding US-China tariffs."

The Hong Kong market band was also lowered to 7,600?8,800 points, reflecting the downward revision of earnings estimates, among other factors. He pointed out, "When US-China tariff risks intensify, volatility in the Hong Kong market tends to be higher than on the mainland, which is also a burden." However, he added, "Expectations for improved earnings from big tech companies, which will be disclosed in May, are expected to support the downside of the Hong Kong market."

For the Greater China portfolio in May, he recommended a sector diversification strategy. Lee stated, "We continue to diversify sectors by including competitive state-owned enterprises such as Zijin Mining and PetroChina, as we did in the previous month." He added, "We relatively prefer themes such as big tech (Alibaba, Tencent), semiconductors (Beifang Huachuang), travel (Trip.com), and Xiaomi, which is expected to benefit the most from the Yiguhuanxin policy."