Investing.com — Sentiment for mainland Chinese stocks rose last week as the region's market rose after a moderate start to the second quarter on hopes for further government stimulus and some positive economic indicators. Spurred on, it improved last week.
China's blue-chip index and the index rose 1.4%-2% this week, outpacing its Asian peers. In particular, prices rose on the back of better-than-expected data for the first quarter showing strong economic growth in China.
Analysts at Morgan Stanley said that although conditions have improved, risks remain in the Chinese market, particularly due to tighter stock market regulations, a weaker Chinese economy and weaker earnings expectations.
To this end, they warned that the recovery in the Chinese market may not be sustained, especially as deflationary pressures and broader geopolitical tensions are also weighing on sentiment.
Morgan Stanley analysts recommended stock picking and more thematic investing to weather further declines in Chinese stock indexes. Two key themes cited by analysts were reform of state-owned enterprises and Chinese multinationals expanding overseas operations, especially in the face of slowing domestic growth.
They expect China's market conditions to remain largely range-bound in the near term due to sustained deflationary pressures and rising geopolitical uncertainty, particularly increased US regulatory scrutiny of Chinese companies. .
Although China's GDP did exceed expectations, it remained relatively subdued, especially given the impact of the persistent deflationary trend on the statistics. And March figures showed that momentum was already fading and that the Chinese government needed to roll out further stimulus to support growth.
