- More and more international investment analysts say it’s time to buy mainland Chinese stocks, ahead of expected government support for growth.
- Bernstein and Goldman Sachs, in particular, have released thick reports on the investability of Chinese shares.
- However, not all investment analysts are as optimistic. Morgan Stanley, Bank of America and J.P. Morgan Asset Management are neutral on mainland China.
More and more international investment analysts say it’s time to buy mainland Chinese stocks, ahead of expected government support for growth.
On top of the pandemic’s drag on the economy, heightened regulatory uncertainty since last summer has generally kept foreign investors cautious on Chinese stocks.
But that’s starting to change for some investment firms in the last several months.
In its global stock strategy report for 2022, Credit Suisse upgraded China to “overweight,” reversing a downgrade of the stocks about 12 months ago.
“Monetary policy is being eased [in China] while elsewhere it is being tightened,” its global strategist Andrew Garthwaite and his team wrote in the late January report. “Economic momentum is turning up.”
One of the early positive turns on mainland Chinese stocks came from BlackRock Investment Institute in late September. As 2022 got underway, other firms also made similar calls, while others remain neutral.
On the political front, Credit Suisse expects regulatory uncertainty to subside after a national parliamentary meeting in March, and remain muted — at least until after the ruling Chinese Communist Party’s 20th National Congress in the fourth quarter.
Chinese President Xi Jinping is widely expected to take on an unprecedented third term at the meeting, which occurs every five years to select top government leaders.
During a December economic planning meeting for 2022, Chinese officials emphasized the need for stability.
Financial factors, such as how much the stocks have fallen compared to their potential ability to deliver earnings, also contribute to analysts’ positive turn on Chinese stocks.
Bernstein: China is ‘uninvestable’ no more
In January, Bernstein released a 172-page report titled “Chinese Equities: ‘Uninvestable’ No More.”
“We believe there is a case to add back China exposure to global portfolios due to six key reasons,” analysts at the investment research firm said.
They pointed to expectations for growth in new financing, easier monetary policy and more attractive stock valuations relative to the rest of the world. Other factors included a rare opportunity to pick stocks, growing foreign inflows and increased earnings.
HSBC: Investors too bearish on China
The Shanghai Composite has climbed 2% since the Lunar New Year holiday, which was from Jan. 31 to Feb. 6 this year. Those gains follow a drop of 7.65% in January, the worst month for the index since October 2018, according to Wind Information data.
Yes, China is struggling with growth and a stronger USD is not good news for China’s stock markets. But that’s now well-known and is priced in.HSBC
“Investors are too bearish about China stocks,” HSBC analysts wrote in a Feb. 7 report that affirmed its call in October to upgrade Chinese stocks to overweight.
“Yes, China is struggling with growth and a stronger USD is not good news for China’s stock markets,” the analysts said. “But that’s now well-known and is priced in. Even good, blue-chip stocks are now trading at attractive valuations.”
The bank’s analysts forecast 9.2% gains this year for the Shanghai composite, and 15.6% for the Shenzhen component index.
Goldman: A-shares are now ‘more investable’
Goldman Sachs forecasts 16% in gains for the MSCI China index this year as valuations remain below the Wall Street bank’s target of a 14.5 price-to-earnings ratio, its chief China Equity Strategist Kinger Lau said in a Jan. 23 report.
On Sunday, Lau and his team released an 89-page report about “why China A-shares have become more investable for global investors.” Their reasoning for investment in the world’s second-largest stock market is based largely on greater accessibility for foreign investors and under-allocation to the share class so far.