Chinese stock recovery faces US Fed and oil pressures in September, says top fund manager

Chinese stocks are anticipated to experience a lackluster September as robust earnings growth is offset by potential tightening of monetary policy in the United States, according to a recent strategy report from China Asset Management, the second-largest mutual fund firm in the country. While mainland-listed companies reported double-digit profit growth in the first half of the year, providing a stabilizing force for stock prices, concerns over hawkish comments from the US Federal Reserve and high oil prices are expected to cap equity gains, the fund manager explained.

The fund oversees a staggering 2.2 trillion yuan (US$328 billion) in assets. As the rebound continues, the fund advises investors to brace for a range-bound market and invest by buying on dips rather than chasing rallies. Chinese equities have been on the mend since a sharp sell-off in July, particularly affecting technology companies.

The Star Market 50 gauge rose by 3% in August after falling 26% the prior month. However, markets slipped back into July lows after Fed Chair Kevin Warsh hinted at the central bank's continued focus on curbing inflation, followed by a hotter-than-expected August jobs report. Speculation on a 58% probability of a 25 basis point interest rate hike at the Fed's upcoming meeting emerged from rates traders.

Simultaneously, rising oil prices nearing $100 a barrel due to US-Iranian tensions has further reinforced expectations of monetary tightening. Higher global borrowing costs could potentially unwind massive speculative trades in the tech sector, where overvalued stocks are under pressure and funding costs for AI investments are rising.

To navigate this uncertainty, China Asset Management recommends a balanced "barbell strategy" portfolio, allocating investments between high-growth technology shares and more stable, defensive sectors such as coal production and banking. The fund expects a 15% increase in full-year earnings for listed companies outside financial and petrochemical sectors, noting that the market has yet to fully incorporate this growth.

Corporate profit growth surged to 14.1% in the first half, a 1.9 percentage point rise from the first quarter, the firm reported. Technology companies spearheaded earnings growth during the first half. Star Market-listed firms saw a more than fourfold surge in profit, fueled by strong domestic demand, according to the China Association for Public Companies.

China Asset Management manages over 500 fund products, with stock-focused funds accounting for about one-third of its total assets, according to Wind data. The firm's largest shareholder is Citic Securities, holding a 62% stake.