Hao Hong, who was ranked the No. 1 China strategist by Asiamoney in 2017 and 2018, said it would be very optimistic to expect China’s economy to grow even at an annual rate of 2% over the next 10 years as the once-hot property sector cools off. The ongoing political tension with the US, especially the threatened delisting of Chinese stocks from US exchanges, is another overwhelming force that will pressure equities both on the mainland and in Hong Kong, he added.
“Don’t expect any record highs anymore,” Hong said during an interview with Bloomberg News while on vacation in New York last week. Stock markets in mainland China and Hong Kong “will have much difficulty breaking out of their trading ranges.”
Hong, who is based in Hong Kong, left Bocom International Holdings as chief strategist in early May and declined to discuss the circumstances surrounding his departure. His pessimistic outlook for Chinese growth stands in contrast to the consensus of economists. While housing market troubles and the Zero Covid policy have caused Beijing to virtually give up on a target of about 5.5% economic growth this year, the median forecast of economists surveyed by Bloomberg calls for growth of 5.2% next year and 5% in 2024.
“Nobody can see what the new growth engine is or where to invest in,” the analyst said. “Industries such as new energy or semiconductors could help lift growth, yet their contributions are just not enough to compensate for losses from the plunging property sector.”
The Chinese economy grew at an average rate of 5.4% between 2019 and 2021. If growth were to decelerate to 2%, that would potentially further squeeze equity valuations. Over the past 15 years, China’s stocks have already suffered from falling multiples even as earnings kept rising. As a result, prices have been stuck within tight ranges.
Hong pointed out that the Shanghai Composite Index has traded within an increasingly tighter range over the past 15 years. Its 750-day moving average, which captures the market’s ups and downs over the previous three-year period, peaked in early 2010 and has failed to set new highs ever since. The same is true of Hong Kong’s Hang Seng China Enterprise Index. Things will probably get worse, Hong warned.
“The growth model determines how high stock markets can go,” Hong said. “Just like a jumbo jet cannot take off on short runways.”
Hong’s predictions about the Chinese market have proven accurate in the past, helping him build a reputation as an objective strategist worth following. He maintains a very active profile on Twitter, where he writes in both Chinese and English to almost 84,000 followers. One prescient call came on June 16, 2015, when he told Bloomberg Television that China’s surging equities were in a bubble and the chances of a market crash were increasing. The Shanghai Composite Index went on to lose about half its value by the time it set a four-year low in early 2019.