China stocks may have bottomed out, but more volatility likely- BCA Research

Investing.com– Chinese equities may have bottomed out after surging to two-year highs last month, but their outlook remains volatile amid persistent doubts over more stimulus and economic growth, BCA Research said in a note. 

A Donald Trump presidency in the U.S. is also expected to provide more headwinds for China, especially given that Trump has vowed to impose steep trade tariffs on the country.

BCA Research was Overweight on Chinese A-shares, but was Neutral on Chinese offshore stocks and Underweight on Hong Kong. 

The brokerage warned that there was little fiscal stimulus expected from the country in the near-term, especially as Beijing sought to gauge just what a Trump presidency will entail for the country. 

The country is experiencing a liquidity trap, which makes “monetary easing less effective,” BCA said. The brokerage warned that China-related trades, such as commodity prices, remained vulnerable, with an economic recovery in the next six months appearing unlikely. 

“Even if Chinese stocks have bottomed, their performance will be very volatile,and risk-adjusted returns will be poor,” BCA Research analysts wrote in a note. 

China’s Shanghai Shenzhen CSI 300 and Shanghai Composite indexes rose sharply in early-October, hitting two-year highs after Beijing announced its most aggressive round of stimulus measures.

But Chinese stocks have since relinquished a bulk of their gains, amid doubts over the scale and implementation of the planned measures. A recent round of fiscal measures from Beijing also largely underwhelmed, pressuring local markets. 

For broader emerging markets, BCA recommended investors stay put, especially in the face of a positive outlook for the dollar in the coming months, which is expected to pressure EMs.