Boost for mainland stocks as curbs ease
Overseas investors have resumed buying Chinese stocks again after a two-month sell-off, enticed by the prospects of an end to Beijing’s zero-Covid policy. The fear of missing out is sustaining the inflows, which has helped to boost the valuation by US$1 trillion.
They snapped up 60 billion yuan (HK$66.5 billion) of onshore stocks in November through the Stock Connect link with Hong Kong, after selling a combined 68.5 billion yuan in September and October. It was also the second-largest net buying this year, after 73 billion yuan in June.
Chinese authorities, facing unprecedented street protests against Covid lockdowns across mainland cities, have chosen to ease some of the curbs while pledging to step up vaccination programmes for the elderly population. Both are music to global investors banking on the overdue reopening of the economy.
“Investors are already starting to see the light at the end of this long Covid tunnel in China,” said David Chao, a strategist at Invesco, which manages about US$1.36 trillion of assets globally.
“We are more optimistic about Chinese risk assets for 2023, given low valuations and an economic upswing led by a controlled reopening next year.”
China’s top liquor distiller Kweichow Moutai and Apple supplier Luxshare Precision Industry were the most sought after by money managers in November, according to Stock Connect data. Appliances maker Midea and retail lender China Merchants Bank were also favoured.
This year’s inflows into yuan-denominated A shares have totalled US$10.5 billion, versus the US$48 billion annual average from 2018 to 2021, showing investors remained relatively underinvested.
Goldman Sachs predicts the net buying will rise to US$30 billion in 2023. “China is likely to have a bumpy recovery as an April reopening could initially trigger further increases in Covid cases, keeping caution high,” its global strategists said in an outlook report on November 28. “But growth should accelerate sharply in the second half on a reopening boost.”
The US investment bank predicts that the CSI 300 Index will rise about 16 per cent over the next 12 months, aided by a gradual exit from zero-Covid policy from April, and an 18 per cent gain in corporate earnings as growth strengthens.
To be sure, some of the biggest money managers are not jumping on the reopening bandwagon just yet. BlackRock, the biggest with US$8 trillion in assets, said China had entered a low-growth phase.
“We are neutral on Asia ex-Japan equities,” BlackRock strategists said in their latest report last week. “China’s near-term cyclical rebound is a positive [factor], yet we don’t see valuations compelling enough to turn overweight.”
Meanwhile, policymakers in Beijing have ramped up measures to tackle a crisis in the domestic property market. They lifted a sixyear ban on equity financing by developers, while the nation’s biggest lenders pledged 1 trillion yuan of credit lines to ease a cash crunch.
“Once the obstacle of the Covid virus has been removed, there is likely to be pent-up demand for housing in China, reflecting limited output in recent years, postponement of marriages and consumers building up cash savings,” said Michael Lytle, chief executive at Tabula Investment Management. “The sector will be on a much better financial footing.”
Investors will be praying for China to deliver on that front to keep the stock rally alive.
The nation’s top leaders are now more attentive to growing protests against snap lockdowns and exhaustive testing under the zero-Covid policy.
Vice-Premier Sun Chunlan said the 20-point easing measures could find support from the lower fatality rate of the Omicron variant, while Guangzhou lifted lockdowns in several districts even as Covid-19 cases surged.