(Bloomberg) -- China’s reopening rally may be losing some momentum, but some investors believe shares will continue to go up after a short-term pullback.

Major equity gauges have slipped since last week after world-beating gains, but few see the market headed for a reversal. The economy’s recovery has been clear, with key indicators for both manufacturing and services jumping and credit data expected to underscore the trend.

“We might be on track for longer periods of horizontal moves in between gains,” said Zhao Yuanyuan, a fund manager at Shenzhen Qianhai JianHong Times Asset Management Co. “A lot of the cheer is reflected in the price,” but drivers including the domestic economic rebound is intact, Zhao said.  

The benchmark CSI 300 Index has been wavering since reaching the brink of a bull market last week. An index of Chinese stocks trading in Hong Kong fell as much as 1.2% on Wednesday, taking losses from a January high to over 7%. 

Here are charts showing the state of play in China stocks:

Foreigners have turned net sellers of Chinese stocks following a record monthly purchase in January. While some may read that as negative, a closer look by Industrial Securities Co. suggests less gloom. The data show that while short-term funds have been selling since the Lunar New Year holidays, long-term investors have been steadily boosting holdings — albeit at a slowing pace. 

“Though we are not worried about a change in market direction, we do want to further watch the pace of the recovery through high-frequency figures,” said Xiong Lin, research director at Shanghai Ruiyi Asset Management Co.

The amount of outstanding margin financing continued to advance through Tuesday. That followed the biggest weekly increase since early 2021, when the CSI 300 was heading toward a 14-year high. The uptick comes after the balance was almost flat during the months-long reopening rally, suggesting risk sentiment has continued to improve despite recent market fluctuations. 

Importantly, it was about time the rally took a breather. Trough-to-peak gains for the CSI 300 neared 20% while those for the Hang Seng China Enterprises Index hit 57%. The CSI 300 is also at levels averaged during April-July last year, when Shanghai’s lockdown exit drove markets higher. 

This suggests the hoard of investors — who jumped into the rally last summer, only to suffer months of losses soon after — are now starting to see positive returns and are tempted to lock in gains. 

Forecasts by Haitong Securities show there will be an uptick in retail demand this year, with estimated net inflows into mutual funds expected to reach 1 trillion yuan ($148 billion), double the amount seen in 2022. 

This comes as Chinese residents now hold around 3 trillion yuan in excess savings after their prudence during the pandemic, the broker estimates, with some of that likely to flow into stocks as the outlook brightens.    

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