(Bloomberg) -- Chinese stocks are unlikely to shake off their gloom with an anticipated holiday splurge next week, as longer-term concerns about a patchy economic recovery and geopolitical risks continue to outweigh any short-term relief.

The MSCI China Index fell about 5% this month, registering its worst April since 2004 and making it a prominent laggard among the world’s major gauges. Meanwhile, China’s domestic benchmark CSI 300 Index suffered a three-week losing streak, after a reopening rally gave in to a $446 billion rout that indicated a return of entrenched pessimism.

The soured mood is permeating Chinese markets even as a slew of industry data point to a travel spending boom during the Golden Week holiday, underscoring Beijing’s challenges to restore investor confidence after years of Covid isolation. Optimists, however, argue that investors simply need more patience for improved business fundamentals to vindicate the appeal of cheap stock valuations.

“Holiday figures will not be enough to spark excitement, with a lot of anxiety and uncertainty about the future as a recurring theme,” said Dai Yuzhong, fund manager at Shanghai Shinyu Private Fund Management Co. “The market has had a lot of time to price in a consumption rebound, but lacks further impetuses.”

Early indicators from the tourism sector herald a sharp rebound in consumption during the May Day holiday, a five-day break that begins on Saturday. Domestic travel bookings have surpassed 2019 levels, rising more than 700% on year, according to travel agency Trip.com Group. Preliminary data from shopping platform Meituan also showed a 200% surge in travel bookings from pre-pandemic levels to hit a five-year high.

Still, that might do little to improve sentiment. While China has released a suite of consensus-beating economic data in recent weeks, the uneven nature of the recovery, including an unfolding housing crisis, has generated caution among investors. 

“People are still not confident in the strength of the recovery. CPI remains muted and the jobless rate stays elevated,” said Wang Huan, fund manager at Shanghai Zige Investment Management Co., adding that an increase in tourists may not necessarily translate into revenue growth.

Chinese shares have tumbled in recent weeks, defying several Wall Street banks’ bullish calls and signaling how deeply rooted some of the long-term concerns are over the market’s major headwinds. They range from rising US-China tensions to lingering fears of Beijing using a stronger economy to revive a campaign to cut financial risk in the tech and real estate sectors. 

But to some observers, the market needs time for the rewards of a recovering economy to gradually sink in. 

“In terms of catalysts, I think we just have to be a bit more patient to wait for earnings to come through and do their work,” said Rebecca Jiang, portfolio manager at JPMorgan Asset Management. “I think valuations at the moment are very reasonable.”

The MSCI China is trading at about 10.1 times forward earnings — 10% cheaper than averages going back two decades. The multiple is 34% lower versus the MSCI All-Country World index and 45% below the S&P 500’s valuation.

“China’s reopening-led recovery is going in the right direction. So there is really no change in our long-term view,” Jiang added.

--With assistance from Xiao Zibang, John Cheng and Jeanny Yu.

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