Was July 8 The Bottom For The Chinese Stock Market?

While global investors continue to make sense out of the recent turbulence in the Chinese stock market, Deutsche Bank analyst Yuliang Chang now believes the worst of the market collapse is over. In a new report out this week, Chang explains why she feels that the Chinese market has already bottomed.

“W”-Shaped Recovery

According to Chang, Chinese equities reached their bottom on July 8 and will spend the rest of the summer trading mostly sideways. In the longer-term, Chang is expecting that the second up-leg of her forecasted “W”-shaped recovery will occur later this year when the fundamental picture improves, driving fund inflows into the Chinese market.

Chang is calling for the HSCEI to reach 14,000 by the end of this year, a 19 percent upside from current levels.

Improving Macro Environment

Chang believes that government stimulus in China could provide all the market needs to get back on track. “We expect Chinese GDP to edge up toward 7.2% in 4Q15, as stringer fiscal stimulus over the coming months may further leverage up LGFVs to boost infrastructure FAI growth, and property investments growth may stop trending down thanks to the continued strength in property sales,” she explained.

Deutsche Bank expects one interest rate cut and one RRR cut in China coming in Q3.

How To Play It

For traders looking to profit off a recovery in Chinese equities, Deutsche Bank recommends buying financials, IT, industrials and utilities and avoiding telecoms and energy stocks. The firm’s top U.S.-listed Chinese stock play is Baidu Inc BIDU.