Deeper bear market ahead for China, warns report

Current valuations are still too high.

Chinese equities may be headed for greater pain ahead after their dismal start in 2016, according to a report by BMI Research.

The report warned that current valuations are unwarranted given the poor earnings outlook, and efforts by the Chinese regulators to stabilise the equity market are unlikely to bear fruit.

“Valuations are not excessively expensive relative to those witnessed at the peak in June 2015, but they remain unwarranted given the country's deteriorating macroeconomic and corporate fundamentals,” the report said.

BMI Research noted that any rebound is likely to be short-lived, and a break below the August 2015 level could see the index fall towards 2,500.

“While GDP figures released by the National Bureau of Statistics (NBS) showed that the mainland economy grew by 6.9% in 2015, we believe that these numbers overstate the pace of economic growth in the country, with various high frequency indicators suggesting actual conditions are considerably worse,” the report added.