© Reuters. FILE PHOTO: A company displays stock information at a trade office in Beijing, China January 2, 2020. REUTERS/Jason Lee/File
By Summer Zhen and Tom Westbrook
HONG KONG (Reuters) – As China’s economy grapples with optimism and fear over the country’s ability to weather the pandemic, rural investors are slowly pulling away as they prepare to return to one of the year’s best-performing markets.
The drumbeat of bullish Outlook has gradually increased in recent weeks as analysts at Citi, Bank of America (NYSE:), and JP Morgan have raised the sentiment, and said that the reopening could raise the stocks shown by buyers who have fallen to attractive prices.
Goldman Sachs (NYSE: ) predicts a 16% index return in the MSCI China and CSI300 next year and recommends a heavy allocation to China, while JPMorgan expects a 10% potential return in the MSCI China in 2023.
Bank of America Securities turned heads in November, when its China expert Winnie Wu picked Internet and financial stocks to lead the short-term return.
Overall, however, while consensus is growing on economic growth, there is uncertainty over the timing and weight of China’s financial stimulus as regulatory and political risks have plagued its markets over the past few years.
“We want to miss out on the first 10% gains, and wait until we can see better, ongoing signs,” said Eva Lee, head of Greater China equities at UBS Global Wealth Management, a global wealth and property manager.
“We’ve been facing a number of plans in 2022,” he added, referring to COVID policies and supplies. UBS Global Wealth Management promotes market segmentation in China.
There is some evidence that the first leg of the early recovery took place this week, with 6% closing its best month since 1998 and 27% up through November. The yuan posted its best week since 2005 on Friday.
Market participants say the stock’s move so far — with COVID cases at record highs and speculation about changes in the government’s response — points to a light environment in China that could lift markets if it settles into stability.
US institutional investors have continued to reduce Chinese American Depositary Receipts (ADRs) listed in the US so far in the fourth quarter by a total of $2.9 billion.
Short interest in ADRs also increased by 11% last month, Morgan Stanley (NYSE: ) data as of Nov. 29 shows. Analysts at Société Generale (OTC:) downgraded their China-advised rating from overweight to neutral.
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China’s stock market has weathered the perfect storm this year, with the US-China dispute threatening US listings of Chinese companies, a debt crisis that has crippled a sector that was once the largest and COVID-19 restrictions slowing growth.
The CSI300 has lost 22% and the Hang Seng 20% so far this year, compared to a 16% loss for global stocks.
The policy response has been to ease spending, increase support for the housing sector and ease some of the stricter COVID regulations. It will still get the full approval of investors, because unpredictable laws and politics are still beneficial, and domestic confidence remains strong.
“Cutting costs didn’t work, like pushing the rope,” said Chi Lo, chief analyst at BNP Paribas (OTC:) Asset Management. He is being followed by the interests of the groups who should receive the results of the policy.
“We continue to focus on three key themes that are aligned with China’s long-term growth goals: technology and innovation, job upgrading and industrial integration,” he said.
Goldman Sachs also encourages policy-based bets on sectors such as technology infrastructure and public sector enterprises.
Politics aside, prices and the prospect that inflation will clog the US economy next year have also prompted investment managers to start testing for misses.
A 27% decline in the MSCI China index this year has left the price-to-price ratio at 9.55 against a 10-year high of 11.29.
“Now there is a risk of being too overweight or short China as many hedge funds were,” said Sean Taylor, Asia-Pacific chief economist at DWS, who thinks there is a possibility of a rally of 15-20%. in China. next year.
“Our idea is to accumulate, in weakness, to reopen the beneficiaries, especially those that are driven by consumers,” said Taylor.
(This article has been edited to correct bullet points)