Are market fundamentals deteriorating?
Many Chinese analysts forecast the Shanghai Composite Index, now just below 2,600, will hit bottom at 2,500 points, a round number which some superstitious investors believe to be a lucky number as well. But tracing back to the origins of the latest market rout, the timing will more likely be linked to when the government will stop taking fresh steps to clamp down on property prices. Despite the steps, property prices in major Chinese cities rose by their fastest clip on record in April and have shown no clear signs of dropping in most cities since the start of May, leaving substantial room for fresh curbs. Once there are clear signs of property price corrections and a pause in the clampdown, the stock market will likely stabilise. This scenario is likely to emerge around mid-year. Afterwards, the solid fundamentals will be poised to prevail, potentially sparking a powerful stock market rebound and mini-bull run depending on the economic picture and state of global markets then.
