A-share rebound a bigger worry if it happens too fast: Barclays

July 15, 2015 11:12
Barclays strategists James Cheo (left) and Eddy Loh share insights on the Chinese stock market and the Greece bailout. Photo: HKEJ

China's stock market appears to have stabilized after a three-week losing streak, but quick rebounds could be a bigger concern for investors, British investment bank Barclays warns.

The credibility of the market and the confidence of investors will be hurt if the market undergoes too many boom-and-bust cycles, Eddy Loh, equity strategist for Asia, told EJ Insight.

The Shanghai Composite Index rallied 5.76 percent last Thursday after the government rolled out a series of unprecendented measures to arrest the selloff. The benchmark gauge rose 4.54 percent last Friday and was up 2.39 percent on Monday.

In Hong Kong, the Hang Seng Index bounced back nearly 4 percent last Thursday after suffering its biggest one-day decline in more than six years.

Barclays has turned more positive on Chinese stocks after the panic selling, upgrading its overall rating for A and H shares to overweight, from neutral since mid-April. It had an overweight call on the stocks at the beginning of the year.

Loh said accelerating financial reforms and supportive policies would fuel future rallies.

Among Chinese stocks, Loh prefers Hong Kong-listed H shares, noting that they have better valuation and lower volatility. 

For those who want to increase their exposure to A shares, he recommends index heavyweights such as insurers and banks.

Commenting on the Greece bailout deal, Barclays investment strategist James Cheo said investors should remain cautious as developments are still unfolding.

Prime Minister Alexis Tsipras was still trying to convince the parliament to enact the economic reforms he has promised to the European Union to secure the rescue package the country badly needs.

And even if the parliament approves the measures, "the issue will not over and they will face more problems down the road", Cheo said.

However, he believes the situation in Greece will not be repeated in two other debt-laden EU members, Spain and Portugal, as their economies have improved in recent months and their capital cost levels are relatively low.

-- Contact us at [email protected]


EJ Insight reporter