Investors in Chinese stocks have been unnerved by increased government scrutiny on aggressive acquirers like Anbang, HNA, Wanda and Fosun, with Credit Suisse telling clients to be cautious amid the uncertainty.
The brokerage says investors have become more concerned since the government introduced measures to tighten credit and rein in leverage.
With regulators adopting tightening measures since last November and with deleveraging measures in the financial market, investors are now extremely nervous about changes in the monetary conditions. We may also continue seeing disturbance from politics as the visibility will likely remain low before the Party Congress. Therefore, any hints of trouble could cause a sudden and unexpected credit tightening.
Credit Suisse notes that credit availability has not been significantly impacted over recent months, but noted the risks to some companies that have made foreign acquisitions and have “sensitive roles in China’s politics”.
Private companies bearing the characteristics mentioned above may be the most vulnerable targets of a credit tightening. It can be triggered unexpectedly by a rumour or a negative incident. Investors should be extra cautious in this period. Such a tightening may impact both related stocks and bonds of these companies. When it happens, the visibility may be very low and investors may find them in a disadvantaged position.
But while there may be risk to specific companies, the possibility of a credit crunch is viewed as low:
However, we believe such risks may likely be confined to those sensitive names. Their combined asset scale is still small. The possibility of a general credit crunch is low. We still believe Chinese leaders will strive to ensure financial and economic stability for the successful party convention, and thus will step in if risks escalate; they have much leeway.