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China Investors Look for Turning Point After $370 Billion Rally

China Investors Look for Turning Point After $370 Billion Rally

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(Bloomberg) — With China’s market prone to sharp inflection points followed by long, strong trends, the timing of a buy is almost as important as the choice to buy.

Bloomberg’s most read

Investors who jumped into Chinese stocks on Nov. 11, when Beijing eased Covid-19 quarantine periods and dialed back testing, have taken part in a rally that has added nearly $370 billion to the value of shares in the MSCI China index.

Others are still waiting for clearer signals after Wall Street went so wrong this time last year. Goldman Sachs Group Inc., JPMorgan Chase & Co and BlackRock Inc. were among those that recommended betting on the market, but saw more than $4 trillion in value wiped out in the 10 months through October.

“Chinese politics is like a giant freight train coming down the track,” said John Lin, portfolio manager of Chinese stocks at AllianceBernstein in Singapore. “The first thing you do is get off the road. Don’t stay on the track! Then as soon as you can, jump on the train.”

Ahead of the curve

Abrdn Oyj is among those who already see opportunities in the country’s corporate loans after the changes in the Covid policy and the extensive package of measures to help the real estate sector.

According to Ray Sharma-Ong, portfolio manager of multi-asset and investment solutions at Abrdn, investors can also immediately position to take advantage of the likely steepening of the Chinese government bond yield curve as the economy reopens from Covid.

“Go on the front end of the curve and go short on the back end,” said Sharma-Ong. According to him, better growth prospects will raise final interest rates, while China’s favorable monetary policy includes interest rates.

Dollar-denominated Chinese corporate bonds already offer opportunities with yields of around 8%, he added. Investing in corporate bonds denominated in local currency includes a positive return of 2% after investors have hedged the yuan against the dollar, according to Sharma-Ong, who expects China’s currency to strengthen further.

Attractive stocks

M&G Investments (Singapore) Pte. and Eastspring Investments Singapore Ltd. are in the market to buy Chinese stocks. Eastspring claims they can’t get much cheaper, while M&G likes domestic consumer brands, electric and traditional vehicle OEMs and factory automation.

“We’re very close to the trough valuations and very, very close to the bottom assumptions for earnings as well,” said Bill Maldonado, chief investment officer at Eastspring, which manages $222 billion. “You would buy now and expect things to pick up every three to six months.”

Catherine Yeung, chief investment officer at Fidelity International, said Chinese stock prices have already factored in so much negative news that the worst is likely over.

December insights

For those still on the sidelines, the Politburo meeting in early December, followed shortly thereafter by the annual Economic Working Conference, may provide useful signals.

Jason Liu of Deutsche Bank AG’s International Private Bank plans to keep a close eye on state media at this time. News of a closed-door work conference that will bring policymakers together to review this year’s economy and set goals and objectives for 2023 could be a catalyst for stores to reopen.

“We may see some signals from senior management,” said Liu, who expects short-term volatility in China’s assets and a “very gradual” move away from Covid Zero over the next few quarters.

Liu recommends looking past the likely volatility and taking a broad position in Chinese stocks, including the technology sector, to benefit from a gradual shift in market sentiment.

He also sees the yuan as attractive given the likely strengthening in the first half of next year. Liu does not recommend credit at this time and warns that the real estate market may take longer to improve.

Any early hints about next year’s economic growth target – about 4.8 percent, according to economists polled by Bloomberg – will help guide market sentiment.

Spring Pivot

Morgan Stanley is among those with high hopes for an acceleration in China’s economic opening in the spring, when the weather turns friendlier, vaccinations may increase and the People’s Congress in March is a key event for market-moving developments.

According to Andrew Sheets, chief strategist at Morgan Stanley, investors who have been underweight Chinese assets may shift to neutral positions during this period.

According to Morgan Stanley, China’s domestic consumer companies will benefit from it.

“If investors are presented with a suspensive Fed and China reopening and stronger growth in the second half of 2023, I think they will see that as a positive backdrop for many different emerging market assets,” Sheets said.


Reopening the economy from Covid could have a positive swing to China’s stock market in 2023, equivalent to one percent of GDP, Bloomberg News macro strategist Simon Flint estimates. This, in turn, will push up the yuan, he said.

James Leung, Barings Asia-Pacific multi-competency manager, recommends aligning China equity portfolios with the government’s policy priorities by investing in the electric vehicle sector, renewable energy and the hardware technology supply chain.

Like Barings, AllianceBernstein sees energy and technology security stocks as low-hanging fruit for investors as long as the companies are aligned with the government’s goals.

The market has changed from the pre-pandemic and pre-regulation era, when investors looked for the latest technology and biotech, “and then watched the money grow 10-fold, 100-fold,” AllianceBernstein’s Lin said. “Now you can find growth, but it has to be a policy-sensitive search.”

– With assistance from Ruth Carson, Sofia Horta e Costa, Ishika Mookerjee and Abhishek Vishnoi.

Bloomberg Businessweek’s most read

©2022 Bloomberg LP


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