LIVE MARKETS-What could change for Chinese equities? 

By Reuters News

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WHAT COULD CHANGE FOR CHINESE EQUITIES?

Chinese stocks are in a historic slump. The blue-chip CSI 300 index .CSI300 has fallen for 11 straight weeks, its longest such streak on record, and is now down about 19% from its June peak.

For investors looking for a turnaround, Louis-Vincent Gave, founding partner of Gavekal Research, pinpoints five potential catalysts.

First, Beijing could return to a more market-friendly stance as the 2027 Party Congress approaches, likely in October. A shift back to supporting domestic consumption and stabilising financial markets, like in 2024 and 2025, could be supportive.

Second, an easing of geopolitical tensions, particularly in Ukraine or the Middle East, could give policymakers more room to stimulate the economy without worrying about imported inflation from higher energy prices.

Third, the AI trade stalls and Chinese markets stop funding the big technology stocks elsewhere in Asia, like Samsung Electronics, SK Hynix and TSMC.

"Not having semiconductors suck all the oxygen out of the room would probably help," Gave said.

Fourth, a stronger yuan could encourage capital to stay at home. The yuan finished today's session at its strongest close against the dollar since June 2022.

Finally, a possible rise in inflation. If prices creep higher, Gave believes the trillions of renminbi sitting in commercial bank accounts could start to burn a hole in people's pockets and they seek higher returns elsewhere.

These possibilities are not mutually exclusive, notes Gave.

"Should they occur at the same time, then the move higher on Chinese stocks could prove quite momentous," he said.

(Samuel Indyk)

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