BlackRock downgrades Chinese stocks to neutral amid property concerns and limited stimulus impact

BlackRock (NYSE:BLK)'s Investment Institute downgraded its outlook on Chinese stocks from overweight to neutral on Monday, September 18, 2023, citing concerns over the country's property sector and limited policy stimulus. The adjustment was reported by Bloomberg and is also reflective of a broader cut in emerging-market stocks due to the slowing Chinese economy.

The institute, an arm of U.S.-based investment firm BlackRock that provides proprietary investment research, noted that China’s restart is losing steam and valuations are not compelling enough to maintain an overweight position. It also identified geopolitical fragmentation, such as the strategic competition between the U.S. and China, as a factor likely to rewire global supply chains.

China's Shanghai Composite Index has remained flat for the year, while the Hang Seng Index has declined about 11% year-to-date. The Chinese economy has been grappling with challenges in the wake of the COVID-19 pandemic. Its property market faces significant distress and default risks, despite several government stimulus measures announced in recent months.

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, pointed out that the Shanghai Composite Index is the worst-performing large market considering both near-term and long-term views. "The index is flat not only for the year but for the last 16-year period also...This is terrible long-term performance," said Vijayakumar.

Furthermore, experts believe that the bleak outlook of the Chinese market may prompt foreign institutional investors (FIIs) to shift their focus from China to other emerging markets (EMs), including India. The ongoing decline in China's population, a decelerating economy, political tensions with the West, and anti-business economic policies are factors contributing to this trend.

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