Int’l investors turn upbeat on outlook of Chinese capital market

Published: January 21,2023

A number of international investment firms or strategists have recently become more upbeat about the prospects of the Chinese capital market given China’s optimization of COVID-19 response and more favorable economic policies. 

China’s recent COVID-19 response improves the investment outlook, said a recent report by UBS Global Wealth Management. “A full reopening is likely to play out in the first quarter of 2023, auguring well for the medium-term investment outlook,” said the wealth management arm of the UBS, and it has lifted China to “most preferred” in its Asian strategy. It is true that many international investors are flocking to Chinese assets as a kind of bargain hunting, said Kevin Chen, chief economist of New York-based asset management firm, Horizon Financial Group, on Tuesday.

The market is under-appreciating the far-reaching ramifications of the adjustment of Chinese policy, and the possibility that a robust cyclical recovery can occur despite lingering structural headwinds, read a recent research note by Morgan Stanley. “Not only does that mean that MSCI China absolute earnings per share growth and return on equity is set to surge, but that an even more dramatic shift in relative terms is now in sight,” said analysts with Morgan Stanley in the report. The MSCI China Index is expected to increase to 80 by the end of 2023 up from closing of 71.09 on Tuesday, according to both Morgan Stanley and Goldman Sachs.

China looks well positioned across the growth, policy, and inflation cycles in a global context in 2023, according to Kinger Lau, chief China equity strategist for Goldman Sachs. Schroder Investment Management Limited was nodded to operate a wholly-owned fund management firm in China on Jan. 13, following the steps of BlackRock Inc., Fidelity International Ltd. and Neuberger Berman Group. By summer and into the second half of the year, China is expected to be a top priority for investors, according to a report by Bloomberg quoting Peter Alexander, managing director at Shanghai-based Z-Ben Advisors Ltd.

Yuki Izumikawa, an official of the Japanese Association for the Promotion of International Trade, said China has adjusted its COVID prevention and control policy, and many business delegations of Chinese local governments have started to attract investment overseas, choosing Japan as one of their destinations. Meanwhile, Japanese companies have full confidence in investing in China and welcome China’s adjustment of epidemic prevention and control measures, he said. Optimistic about the recovery of China’s domestic demand centered on consumption, Kiyoyuki Seguchi, research director at Japan’s Canon Institute for Global Studies, said that increased investment in China is not only conducive to Chinese economic growth, but will also contribute to world economic recovery.

Investors’ optimism on the Chinese capital market has firmed up Chinese currency RMB, which appreciated over 6 percent against the U.S. dollar since the end of November 2022. The short-term announcement effect of the China’s optimization of COVID-19 response is RMB positive as growth and equities are re-priced, said Claudio Irigoyen, a senior strategist with Bank of America in a recent note. The current economic recovery in China is going to be led by services and consumption rather than investment, which helps local equities more than other economies, according to George Efstathopoulos, a portfolio manager in the multi asset team with Fidelity International.

Xinhua