Financial News
Chinese Investors Anticipate A Turning Point Following The $370 Billion Market Surge
Timing when to buy in the Chinese market is almost as crucial as deciding what to buy. After Beijing reduced Covid-19 quarantine periods and testing on Nov. 11, investors in the MSCI China Index gained roughly $370 billion.
After Wall Street miscalculated last year, others are looking for better signals. Goldman Sachs Group Inc., JPMorgan Chase & Co., and BlackRock Inc. advised investing then, but the market lost roughly $4 trillion in value by October.
John Lin, AllianceBernstein’s Singapore-based China equities fund manager, described Chinese policy as a freight train. “Get out of the path first. Stop! Jump aboard the train when you can.”
Even as Covid instances have increased, China’s benchmark CSI 300 Index has recovered around 8% from this year’s low in late October. Thursday saw the first daily infection above 30,000 as officials attempt to curb outbreaks that have prompted additional restrictions in several of the larger cities.
Preemptive
After the Covid policy reforms and a broad property sector rescue package, Abrdn Plc sees potential in corporate bonds.
Ray Sharma-Ong, abrdn’s multi-asset and financial solutions fund manager, says investors can position themselves to take advantage of a projected steepening in China’s government bond yield market curve after Covid.
“Go along on the front-end of the curve while going short on the back-end,” Sharma-Ong advised. He said China’s supportive monetary policy will hold front-end rates while a brighter economic forecast will raise back-end rates.
He stated dollar-denominated Chinese corporate bonds offer 8% yields. Sharma-Ong anticipates the yuan to rise, therefore investing in local currency corporate debt yields a 2% positive carry after hedging back to the dollar.
Appealing Stocks
Eastspring and M&G Investments (Singapore) Pte are buying Chinese stocks. Eastspring claims they can’t get cheaper, whereas M&G prefers domestic consumer brand names, electric and traditional vehicle OEMs, and manufacturing automation.
Eastspring’s $222 billion chief investment officer Bill Maldonado stated, “We are extremely close to trough prices and very, very close to trough earnings forecasts.” “You’d buy now and expect a three-to-six-month rebound.”
The worst is likely gone for investors, according to Fidelity International investment director Catherine Yeung.
December Insights
The annual Central Economic Work Conference and early December Politburo meeting may provide clues for onlookers.
Deutsche Bank AG’s worldwide private bank’s Jason Liu will monitor state media. The closed-door work meeting, where policymakers will analyze the economy and establish goals for 2023, may spur trade reopening.
Liu predicts Chinese asset volatility and a “very gradual” shift away from Covid Zero over the following few quarters.
Liu advises having a broad position in Chinese shares, particularly technology, to gain from a gradual sentiment shift.
Given its expected increase in the first part of 2019, he likes the yuan. Liu advises against loans because the property market may take longer to improve.
Spring Pivot
Morgan Stanley expects spring’s warmer weather, increased immunizations, and March’s National People’s Congress would accelerate China’s economic opening.
According to Morgan Stanley chief cross-asset strategist Andrew Sheets, underweight Chinese asset investors may become neutral.
The investment bank expects indigenous consumer companies in China to prosper.
Sheets said investors will see a paused Fed, China reopening, and better growth in the second half of 2023 as a bullish backdrop for emerging-market assets.
Future
According to one macro strategist Simon Flint, reopening Covid may lead to 1% of GDP in equity inflows into China in 2023. He stated this would boost the yuan.
James Leung, head of multi-asset for Asia Pacific at Barings, suggests investing in electric vehicles, renewable energy, and the hardware technology supply chain to match China stock portfolios with government policy priorities.
Alliance
Bernstein sees energy and technology security equities as low-hanging fruit for investors if they match with government ambitions.
AllianceBernstein’s Lin said investors used to look for IT and biotech darlings “and then watch the money expand 10 times, 100 times” before the pandemic and regulatory crackdown. Growth is still possible, but it must be policy-sensitive.
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