After another anonymous article by an “economic oracle” in the People’s Daily describing an “L-shaped” growth trend, Credit Suisse AG is projecting that same forecast to the stock market.
Beijing, China, May 25, 2016 — The SSE Composite Index, which keeps track of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange, will still trade in channels after mass sell-offs at the beginning of the year. This is despite another economic “communication” like those before the last two runs of declines in Chinese equities, according to the Swiss holding company.
The reference to the L shaped trend by Credit Suisse’ Equity Manager Li Chen was first seen in January, when the People’s Daily newspaper printed an interview by an “authoritative person” who forecast “a sustained period” with an L-shaped development trend, rather than a quicker V or U recovery. The announcement from Credit Suisse Group AG comes after the third mysterious communiqué last week also appearing on the front page of the national publication, which is usually reserved for in depth articles covering the movements and actions of the president of the nation, multiplying the interview’s importance.
Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management commented on the state of play on Tuesday, “The general sentiment of the interviews has investors worried more than the actual fine print. The facts communicated in the articles are pretty fundamental. Building up huge debt is very risky and China needs to take a hard look at its underperforming loans.”
Unlike the previous lengthy interviews that appeared in the paper there is little chance this one will be a prelude to large scale sell offs. The SSE Composite Index is predicted to fluctuate between a 2,600 to 3,000 margin, quite close to the current levels of 2,843, as a supply of equities that is fast accelerating is reined in by multiple components such as cheap valuation.
According to Chen, “The primary reasons for stock decline, spoken of in financial circles, differs from the policy changes in the articles by this mysterious expert“, the comments coming despite China’s local A-share market reduced markedly after the first two printed interviews.
The first article, this time last year, concentrated on “risk control” and a sell-off was subsequently brought on by deleveraging in the stock market, Chen said, and the second piece came before yuan declines that sent the Chinese stock market on a vicious downturn even though the report followed supply side reforms.
Shizuoka Capital Wealth Management