Chinese Equities Could Hold on to Recent Gains, But Long-Term Outlook Bleak
China’s equity markets could hold on to recent gains following the announcement of economic stimulus—and perhaps even extend them near term—but the long-term outlook remains fairly bleak, says Thomas Mathews, head of markets at Capital Economics. The expected boost to growth from the stimulus suggests the stock market rally is unlikely to unwind much just yet, but Mathews points out that this isn’t the first time in recent years that a seemingly pro-growth shift by policymakers has fueled a rally, all of which have faded. What could keep things going this time is sustained growth in companies’ EPS, but that’s something they have struggled with in the past, he adds. “We don’t see much in this stimulus package to change that, so despite our cautious near-term optimism we’re sticking with our downbeat long-run view.”