• China stocks underperformed in 2021
• Some investment banks now more confident
• Some analysts still cautious – some risks remain
China stocks lost feathers in 2021. In addition to slowing down economic growth, this was also due in particular to interventions by regulators in the market. However, some investment banks are currently more confident about Chinese stocks again.
Some investment banks optimistic about China investments
According to CNBC, the BlackRock Investment Institute had already made more positive statements about stocks from mainland China at the end of September. In addition, the major Swiss bank Credit Suisse has now reversed its downgrade of Chinese stocks from about a year ago and upgraded them to “overweight” in its Global Stock Strategy Report for 2022. “Monetary policy will [in China] relaxed while being tightened elsewhere,” quotes CNBC Andrew Garthwaite and his team from the report from late January. “The economic momentum is picking up.” In terms of politics, Credit Suisse assumes that the regulatory uncertainty after a meeting of the national Parliament will soften and remain subdued in March, and President Xi Jinping is expected to inaugurate a third term at the 20th National Congress of China’s ruling Communist Party in the fourth quarter, along with financial factors such as the fall in share prices, by comparison on their potential profitability, analysts’ positive turn on Chinese equities.
Bernstein, too, believes, as CNBC reports, that there is good reason to “reintroduce exposure to China into global portfolios,” according to the investment research firm’s analysts in a report published in January, titled “Chinese Equities: ‘Uninvestable’ No More”. Factors analysts pointed to include growth expectations in new funding, looser monetary policy, more attractive equity valuations relative to the rest of the world, growing foreign inflows and higher earnings.
According to CNBC, analysts at the British bank HSBC said in a report in early February that investors were “too pessimistic about Chinese equities” and reiterated their October call to upgrade Chinese equities to overweight. “Yes, China is struggling to grow and a stronger USD is not good news for China’s stock markets,” CNBC said. “But that’s now well known and priced in. Even good blue chip stocks are now trading at attractive valuations.” And so the HSBC analysts forecast an increase of 9.2 percent for the Shanghai Composite and 15.6 percent for the Shenzhen Component Index this year.
According to CNBC, the major US bank Goldman Sachs is also becoming more confident about China investments and recently published a report on “why Chinese A shares have become more investable for global investors” – meaning mainland Chinese companies listed in China, either on the Shanghai Stock Exchange or the Shenzhen Stock Exchange. Among other things, Goldman Sachs cited better accessibility for foreign investors and the previous under-allocation of the share class as arguments for investing in China. Goldman Sachs expects the MSCI China index to rise 16 percent this year, CNBC reports, as valuations remain below the Wall Street Bank’s target of a price-to-earnings ratio of 14.5, Goldman said Sachs chief Chinese equity strategist Kinger Lau in a January report.
UBS is also optimistic: According to CNBC, at the end of October the major Swiss bank announced that it was upgrading Chinese stocks to “overweight” – in the summer of 2020 it had classified them as “underweight”. Kelvin Tay, UBS Global Wealth Management’s regional chief investment officer, also told CNBC’s Squawk Box Asia in late December: “I think China is cheap. If you look at China’s performance this year on a relative basis, it has underperformed by about 40% compared to both the European and the American indices”. Therefore, see China “from a valuation perspective and a positioning perspective [
] “Certainly very, very attractive.” Additionally, the emerging markets strategy team said in January that among the stock ideas analysts were most confident in were many Chinese internet names like Alibaba, which had previously been the target of Beijing’s new regulation on alleged monopoly practices and data security were.
Not all investment banks are bullish
While Credit Suisse, Bernstein, HSBC, Goldman Sachs and UBS are bullish on China stocks, there are some international investment banks that are not quite as optimistic. According to CNBC, JP Morgan Asset Management, Bank of America and Morgan Stanley’s equity strategy team are neutral on Mainland China on emerging Asia. Winnie Wu, China equity strategist at BofA Securities, recently explained that China has not always experienced a bull market in recent years of stimulus. While there are investment opportunities in certain sectors, she expects corporate earnings growth to slow across China.
A sell-off in mainland stocks reflected how investors in general have remained wary of Chinese stocks, CNBC reports. Even on upgrades, firms like BlackRock would have used conservative terminology, warning: “Given the low benchmark weights and typical client allocation to Chinese assets, the allocation would need to increase manyfold before it represents a bullish bet on China, and even more so for government bonds.” .
And even Credit Suisse’s Andrew Garthwaite, who is actually bullish on China stocks, sees risks to Credit Suisse’s prospects due to a sharp drop in Chinese property prices, widespread lockdowns due to the pandemic and regulatory uncertainties, according to CNBC.
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