China’s equities market has enjoyed a healthy start to the year thanks, in part, to growing optimism from fund managers and investors.
As China enters the year of the rabbit, various equities indexes and industry surveys all suggest a bullishness around China-based stocks.
The Hang Seng and Shanghai Composite have both staged strong gains in January, while the MSCI China index has surged more than 50% since November 2022.
Meanwhile, Bank of America’s Asia Fund Manager Survey found 95% of investors expect stocks in Asia Pacific, excluding Japan, to rise in the next 12 months, adding that most fund managers are “unabashedly bullish on China”.
According to Winnie Chwang, portfolio manager at Matthews Asia, there are two catalysts for the rally in Chinese equities – the lifting of Covid restrictions, which should “unlock the suppressed value hidden behind the mass lockdown”, and China’s refocus on its growth economy.
As Chwang said: “China is in the unique position to be able to consider easing its monetary policy and targeted stimulus could be possible. Doing so will likely make China unique amidst many of its major peers, which are steadfastly on track for higher interest rates.”
However, as Chwang and other fund managers have highlighted, China’s equities market is not without its risks.
“Attention is finally starting to turn back to China once again as a country with significant investment potential,” said Victoria Scholar, head of investment, interactive investor
“However, caution remains, with potential headwinds from the possible reimposition of Covid restrictions, strict regulation from Beijing, especially in the tech sector, and the overhang from its property crisis.”
An additional risk is that the easing of restrictions and a return to growth could also result in inflation, according to Gareth Gettinby, multi-asset investment manager at Aegon Asset Management.
“Many economies around the world have had to deal with spiralling inflation throughout 2022, albeit China is the outlier with the most recent consumer price index in December rising a mere 1.8% (year-on-year),” said Gettinby.
“As China advances the easing of Covid restrictions, inflation will potentially accelerate due to pent-up demand and government growth policies.”
However, China’s monetary policy is unlikely to impact global inflation, said Gettinby, reflecting the overall mood of positivity among fund managers in terms of Chinese equities.
“Ultimately, the speed of easing of Covid restrictions has surprised many, and it seems China is prioritising growth above all else,” said Gettinby. “In terms of prosperity at least, the Year of the Rabbit may well bring some welcome respite.”
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