INVESTORS who have snubbed stocks tied to Chinese growth may face a “pain trade” after the world’s second-biggest economy unleashed a new stimulus package and the Federal Reserves cut interest rates, strategists at Barclays said.
Cyclical stocks have been among the worst performers of 2024 as investors flocked into defensive shares, such as pharmaceuticals and telecommunications, amid fears global growth would suffer from a possible US recession and a sluggish Chinese economy.
Sentiment, however, started changing last week with the Fed’s bigger-than-expected interest-rate cut lifting hopes of a US soft landing. Now, with China’s central bank unveiling a broad package of monetary stimulus measures, the mood towards cyclical stocks might swing decisively to fears of missing out on a rally.
“There is dry powder for more rotation and cash deployment into equities if macro/earnings fundamentals continue to hold into 2025,” Barclays strategists led by Emmanuel Cau wrote in a note. “China proxies like autos, miners, chemicals and our China exposure basket look particularly under-owned, so more upside would likely be a pain trade for most investors.”
Barclays’ index of European stocks most tied to China’s economy has lost about 15 per cent so far in 2024 while the continent’s stock market rose 8.4 per cent.
Over at Citigroup, European equity strategists including Beata Manthey, also argued that while the stimulus measures were unlikely to be game changer for China, they would likely help tilt sentiment towards cyclical stocks.
“This represents a case in which downbeat sentiment is undone by a positive catalyst,” her team wrote in a note. BLOOMBERG
