Wall Street's Chorus of China Buy Calls Grows Louder

Wall Street’s Chorus of China Buy Calls Grows Louder

(Bloomberg) – A bullish consensus for Chinese equities is emerging on Wall Street, with renewed optimism around President Xi Jinping’s policy pivots and November’s epic stock rebound prompting some major banks to step back from their long-term bearish views. date.

Bloomberg’s Most Read

Morgan Stanley, notable for its cautiousness, raised its targets for the country’s stock indicators last week, expecting the MSCI China index to rise 14% by the end of next year. Bank of America Corp. turned tactically positive on China, where some key equities indicators lost more than a third of their value in the year to October, making them the worst performers in the world.

JPMorgan Chase & Co. had moved even faster, calling the market crash late last month a buying opportunity, a break from the bank’s “uninvestable” label for Chinese internet companies earlier this year. .

READ: All is suddenly good for the Chinese stock market

Sell-side analyst confidence is bolstered by surprise policy shifts in recent weeks, ranging from the easing of rigid Covid controls to stronger remedies for housing problems and efforts to improve ties with the United States. The moves rekindled market enthusiasm after a $6 trillion rout that culminated at last month’s Communist Party Congress, where Xi’s precedent-defying power grab sparked fears the ideology does not outweigh pragmatism.

Chinese markets reached “the kind of valuation discount that we thought was characterized by a really bearish scenario. So now, with increasingly positive news flow, it may start to do better,” said Jonathan Garner, chief equity strategist for Asia and Emerging Markets at Morgan Stanley, in an interview last week. . The bull market could last for quarters, he added.

The MSCI China index jumped nearly 24% this month, poised for its best performance since 1999, after falling 17% in October. The Hang Seng China Enterprises Index of Hong Kong-listed Chinese stocks and the NASDAQ Golden Dragon China Index are also in bullish territory, defined by a 20% rebound from a recent low.

READ: Chinese stocks break into bull market on Covid, ownership changes

The latest rally could have legs, if China’s exit from Covid Zero continues and its economy recovers further, according to Laura Wang, chief China equity strategist at Morgan Stanley. “I don’t think he has yet fully assessed all the benefits of a full reopening, a rebound in consumption, macroeconomic stabilization and a rebound in job opportunities.”

Garner and his team correctly predicted deepening routs in emerging markets and China earlier this year.

high hopes

Many major Wall Street banks were bullish on China heading into 2022, touting easing regulatory headwinds on technology, growth-friendly economic policies and attractive valuations. Goldman Sachs Group Inc., for its part, expected double-digit gains from Chinese stocks this year.

However, punishing Covid lockdowns, a real estate crisis and the risk of potential delisting of dozens of local businesses from the US have sparked a relentless sell-off.

As the market posted a remarkable rebound this month, Goldman Sachs predicts a further rally. The MSCI China index and CSI 300 index will rise 16% over the next 12 months, the most in Asia, strategists including Timothy Moe wrote in a note last week.

READ: Fund titans buy Chinese stocks on bets The worst is now over

Global funds have bought about 41 billion net yuan ($5.8 billion) of onshore Chinese stocks so far this month through business links with Hong Kong. This is after net outflows of 57.3 billion yuan in October, the largest since March 2020.

‘Real purchase’

Still, several market watchers have said that the execution of the policies announced by the Chinese authorities is the key thing to watch over the coming months. It therefore remains to be seen whether the optimism of sell-side analysts will lead to sustained flows from real money investors.

A resurgence in Covid cases is already tempering expectations of big changes in the Covid Zero strategy.

JPMorgan Asset Management sees some U.S. institutional investors continuing to reallocate funds from China to other emerging markets due to challenges and uncertainties surrounding its domestic politics, Taiwan, and tensions with the United States.

The recent rally is partly due to speculators reversing a wave of bearish bets, said Julien Lafargue, chief market strategist at Barclays Private Bank. “We haven’t seen the real buying in China yet, and I think people will want to see evidence of reopening, better economic data coming out of China before taking that step.”

READ: Market hopes for China’s Covid kingpin may have gone too far: CLSA

‘Game Changer’

Meanwhile, the November surge saw offshore Chinese stocks, which suffered more during the long recession, rebound stronger than their counterparts in Shanghai or Shenzhen.

Analysts say the most profitable bets are likely to be in Hong Kong and New York stocks, as they remain much cheaper than their onshore peers. Their greater exposure to the consumer sector, which is experiencing high pent-up demand, is also seen as an advantage. Morgan Stanley ended its preference for onshore stocks last week.

The Hang Seng gauge of Chinese stocks in Hong Kong is still down almost 26% this year. The CSI 300 climbed 8.4% in November, reducing its 2022 loss to 23%.

The recalibration of Covid ownership policies and measures “could be a game-changer for China’s challenging offshore market,” HSBC Holdings Plc analysts, including Raymond Liu, wrote in a recent note.

READ: Cheap HK stocks are a hot pick for Chinese bulls: review

–With help from Henry Ren and Abhishek Vishnoi.

Bloomberg Businessweek’s Most Read

©2022 Bloomberg LP

#Wall #Streets #Chorus #China #Buy #Calls #Grows #Louder

Leave a Comment

Your email address will not be published. Required fields are marked *