There is an outlook that the widening gap between stock prices and earnings in Greater China stock markets will persist until the end of October. For investors, this suggests that a selective approach focusing on sectors and themes, rather than indices, is necessary.
On September 23, Park Jooyoung, a researcher at Kiwoom Securities, stated in the report "China Now - A Review of Recent Expectations and Risks in Greater China Stock Markets" that "the trend of rising stock markets in Greater China depends more on China's economic performance than on interest rate cuts by the United States."
First, Park highlighted that expectations for foreign capital inflows into the Chinese mainland and Hong Kong stock markets have grown recently due to the U.S. base rate cut, and assessed that "there is ample room for additional inflows." However, he emphasized, "For this trend to develop into a sustained rally, confirmation of stimulus measures or signs of economic recovery must come first."
Park noted that "the liquidity momentum currently driving Greater China stock markets remains valid," but also pointed out that concerns about market overheating are gradually surfacing. In September, the ratio of trading value to market capitalization in the mainland stock market exceeded 600% for a second consecutive month, surpassing the peak seen in 2021.
He judged that "if an additional rally occurs while signals of easing economic and external uncertainties remain limited, concerns about government intervention could resurface." Nevertheless, he predicted that policy expectations would support stock prices through the end of October. U.S. President Donald Trump and Chinese President Xi Jinping are expected to hold talks at the Asia-Pacific Economic Cooperation (APEC) summit in Gyeongju at the end of October.
Park summarized, "After the mainland stock market outperformed in July and August due to liquidity momentum, offshore markets have shown further gains. This trend is likely to continue in the short term," adding, "The potential for further inflows of Chinese household assets, eased geopolitical risks, and expectations for supply-side reform policies will persist until the Fourth Plenary Session and the APEC summit."
He continued, "Since September, offshore markets have continued to outperform the mainland, and this relative advantage is expected to persist. Given the widening gap between stock prices and earnings, a selective approach focusing on sectors and themes is more appropriate than an index-based strategy," he added.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
