China Markets

Chinese stocks often gain after the country's annual congress meeting. Here's what strategists expect this year

Key Points
  • Hao Hong, chief economist of Grow Investment Group told CNBC, expects the indexes to fluctuate between gains and losses of 3%.
  • Goldman Sachs strategists said in a February note, "Health care, consumer staples, and utilities tend to outperform after the NPC meeting."
The Bund Bull in Shanghai on Feb. 28, 2023. After three years of turbulence under the Covid pandemic, China's leaders are expected to lay out goals to get growth back on track.
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China's onshore stocks often see a modest rally after the country's party congress sessions, but economists and strategists are mixed on whether that pattern will carry on this year.

This year's "Two Sessions" annual parliamentary gathering in Beijing including the National People's Congress may see smaller gains in the MSCI China index, which captures large and mid-cap stocks – and the CSI 300, which tracks the largest stocks listed in Shanghai and Shenzhen.

"The market tends to have reasonable performance pre- and after-twin sessions," Hao Hong, chief economist of Grow Investment Group told CNBC. But there's been fluctuation ahead of this year's sessions: He pointed to a recent decline after Hong Kong stocks rallied roughly 50% and China's mainland stocks rose by 15%.

He expects the indexes to move between gains and losses of 3%, "unless there are policies unexpected by the market," he said.

"It's a narrow range unless there is a big stimulus announcement," he said, which he predicted was unlikely given the strength of recent economic data.

China's latest factory data recently saw the highest reading in more than a decade. Economists have also raised its forecasts for China's gross domestic product for the year.

"The goal this year will likely be steady growth and stimulate consumption. While many are calling for a consumption coupon, on national scale it is unlikely," Hong said.

BNP Paribas' head of East Asia strategy Jason Lui said that over the last decade, markets have seen a modest, average rise of 3% before and a month after the NPC. But that average has been skewed higher by big rallies in 2015 and 2019.

For example, Lui noted in 2019, the NPC was held on March 5, and a 25% rally took place in the CSI 300 from Feb 1 to April 4.

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Pointing to data that tracks the MSCI China index's performance between 2011 and 2022, Goldman Sachs economists said the index tends to have positive returns in the month following an NPC meeting.

"Health care, consumer staples, and utilities tend to outperform after the NPC meeting," the strategists said in a February note. Goldman Sachs strategists last month forecast China stocks to jump as much as 24% by the end of the year.

Consumer-led gains

For this year's meeting, strategists at Societe Generale are expecting an easing of government regulation, which would be good news for consumer companies.

"The NPC could provide further details on fiscal easing, favoring infrastructure- and consumer-related stocks," SocGen strategists wrote. "We believe greater conviction that the equity market has troughed is only likely to come from a more stable regulatory environment."

Further down the line this year, they expect to see other measures that support stock prices: a cut in the central bank's required reserve ratio, a boost in infrastructure spending, corporate tax cuts, and consumption stimulus.

"The NPC is likely to reiterate its softer stance on deleveraging, enabling more funding to flow to infrastructure and housing, as well as a more flexible implementation of energy-intensity caps," the strategists wrote.

Testing bullish targets

JPMorgan's chief Asia and China equity strategist Wendy Liu said investors may not find much upside from this year's upcoming "Two Sessions."

"In the past two weeks, China's onshore/offshore equity indices fell as some investors trimmed expectations on the two sessions, a more hawkish Fed and geopolitical tensions," Liu said in a note.

She said that the MSCI China index and the CSI 300 may test JPMorgan's previous targets of 80 and 4,600 for the second quarter of 2023, adding that the meeting is expected to announce key policy goals, senior official lineup, and possible adjustments in ministries.