U.S. stocks continued to “bear market rebound”. When they were on the verge of technical breaking last week, they brake in time, and the S & P 500 rebounded to around 4100. However, no matter how crazy the “bear market rebound” may not change the main line of the “bear market”. The Nasdaq 100 index has fallen by 30% from its peak to last week’s low. The prospect of substantial monetary tightening and geopolitical risks have not dissipated.
In contrast, international investors believe that China’s stock market, which fell more sharply earlier this year, has entered the last stop of the bear market. Recently, Morgan Stanley released its medium-term outlook report, “the last stop of the bumpy bear market needs to be patient”, and said that after 14 months of decline, the MSCI China index may be approaching the later stage of the bear market. In addition, compared with the offshore stock market, institutions are more optimistic about a shares, because A-Shares can benefit from potential easing policies in the short term and are consistent with long-term growth opportunities (it, industry, green economy, etc.). At the same time, China’s recently officially launched personal pension plan also supports institutions to participate in the market.
US stocks “bear market rebound” can hardly reduce the bear market pressure
U.S. stocks fell sharply in the past two weeks, and the S & P 500 fell below 3930 from around 4400, almost below the key technical support level of 3924. After the crash, the short covering market has driven the market to rebound since last Friday.
The US stock market opened higher overnight, generally up more than 2%. Earlier, US Federal Reserve Chairman Powell said that inflation was the top priority and financial conditions had been “tightened a lot”. Strong economic data also boosted the stock market. US retail sales remained strong in April, and those worried about the negative impact of inflation on household spending were relieved.
Data show that retail sales in April increased by 0.9% month on month, in line with expectations. This is the fourth consecutive month of growth in retail sales. Earlier, people from all walks of life worried that high inflation might curb consumer demand. Excluding cars, the monthly rate of retail sales rose by 0.6%, higher than the expected value of 0.4%, lower than the previous value of 2.1% (initial value of 1.1%).
“After the correction of the previous value, the data is strong enough to show that U.S. consumers are not ready to stop spending in the face of inflation, which has been at a high for nearly 40 years.” Tony sycamore, a senior analyst at city index, told reporters,
He also mentioned: “although we are still bearish in the medium term, the overnight rebound is in line with our view that the S & P 500 index will rebound to the resistance level near 4200 – 4300 to get rid of the fact that it was oversold, and the recent series of bad news seems to have ended. However, US stocks are still in a bear market. There has always been a large rebound in the bear market, but the bottom will continue to decline after that, and the alarm has not been lifted.”
Recently, Goldman Sachs, the “dead bull” of US stocks in the past two years, also lowered the annual target of S & P 500 to 4300, which was previously predicted to be 4700, and the forecast point given at the end of last year was 4900, which is near the highest range of Wall Street’s forecast. At that time, Morgan Stanley’s forecast was 4400 At present, Morgan Stanley has further lowered its point forecast for the year to 3900 (basic scenario), and its bear market scenario forecast is 3350.
“The macroeconomic and earnings slowdown occurred when the Fed was still very tough. We still believe that the pricing of US stocks did not take this background into account. According to our fair value framework, the pricing of the S & P 500 in the current growth environment is still wrong. The point of fair value should be between 37003800, and it may still be overshoot downward.” Michael Wilson, chief US equity strategist at Morgan Stanley, told reporters.
According to the current market consensus expectation, the Federal Reserve may raise interest rates by 50bp at its meetings in June, July and September, and conduct a large-scale table contraction at the same time. The April data also showed that inflation may last longer than expected.
China’s stock market may be the last stop in a bear market
Compared with US stocks that are still uncertain, China’s stock market, which has fallen sharply before, seems to have begun to attract the attention of international institutions. In particular, China’s macro policy has not been tightened as aggressively as that of developed countries.
Morgan Stanley predicted in its recent medium-term outlook report that under the benchmark scenario, by June 2023, the Hang Seng Index, Hang Seng state-owned enterprise index, msc1 China and CSI 300 index will reach 21500 points, 7330 points, 70 points and 4300 points respectively, which means that they will rise by 7% and 8% respectively based on the closing on May 6, 2022. 9% and 10%.
The agency slightly lowered its profit growth outlook and valuation forecast, because the spread of Omicron virus, the tightening policies of global central banks and the short-term macro adverse factors caused by geopolitical risks will still inhibit the improvement of the market. But the key is that the MSCI China Index has entered a bear market for more than 14 months. From February 17, 2021 to May 6, 2022, the index fell 51%. Compared with other major stock indexes in the world, the MSCI China index continued to decline for a longer time and by a larger margin. Even relative to the msc1 emerging markets index, MSCI China fell 32% over the same period.
Although there are still many uncertainties, Morgan Stanley’s risk return assessment of China’s stock market is more inclined to bull market. The agency predicts that in the case of bull market, the rise range of different stock indexes in China will be between 30% – 36% in the next 12 months, but in the case of bear market, the decline range implied by the target prices of different indexes will be between 13% – 15%. The drivers of the bull market may include: macroeconomic / supply chain disruption, accelerated recovery, including the full reopening of consumption and services; More forcefully relax the real estate market, eliminate the market’s concerns about systemic risks, and accelerate the recovery of real estate sales; The credit expansion cycle is larger than expected to cushion the upcoming quantitative tightening (QT) of the Federal Reserve; Comprehensively resolve the differences between China and the United States on the audit of Chinese concept shares, and quickly resume the overseas IPO of major Chinese technology companies; The signs of completion of regulatory reset are becoming more obvious; Early settlement of international geopolitical disputes, etc.
Coincidentally, JPMorgan recently reiterated its constructive position on China’s stock market and recommended super allocation of high-quality value stocks and growth stocks. Recently, JPMorgan securities has also raised the ratings of several Chinese companies: JD group’s ADR and H-share ratings to neutral, Alibaba’s ADR rating to over allocation, Baidu’s ADR rating to neutral, BiliBili’s H-share rating to neutral, Tencent’s rating to over allocation, Netease’s rating to over allocation and meituan’s rating to over allocation.
However, according to historical experience, the bottom of a bear market always fluctuates abnormally. Morgan Stanley also mentioned that the final stage of the bear market cycle may be very bumpy and requires more patience for the market to achieve a sustainable recovery.
