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The Chinese market is recovering but there are still plenty of cheap stocks. Here: an electronic board showing the Hang Seng Index in Hong Kong.
Bertha Wang / AFP / Getty Images
For a market that was considered “uninvestable” a few months ago, China is looking quite optimistic. The
exchange-traded funds (ticker: MCHI) are up 22% from their lows in early May. The S&P 500 has lost 4% in that time.
Investors see good time to roll some more time. “Two months ago, we didn’t have any similar strategies to Chinese stocks,” said Michael Kelly, head of multi-level strategy at PineBridge Investments.
The thunderclouds that formed a perfect storm across China earlier this year have brightened, if not dissipated. Shanghai’s two-month Covid 19 lockdown ended on May 31. A “Covid dynamic” policy change promises less draconian measures go forward. Policymakers have returned to stimulus mode, raising hopes of a recovery for the key real estate sector.
Regulatory attacks against internet companies have eased. Share in
Alibaba Group United States
lding (BABA), giving traces of Beijing’s “reform”, has skyrocketed 20% in the past month.
Authorities have been gradually reviewing the testing and quarantine requirements for Covid, with the tacit goal of not repeating the failure in Shanghai. At least that’s what the market thinks. “The chances of another protracted stalemate in major cities are slim,” said Larry Hu, chief China economist at Macquarie Group. “Policymakers will likely tweak the definition of ‘zero-Covid’ to make it less disruptive.”
The macroeconomy has moved from last year’s “common prosperity” to getting the economy back on its feet. Recently, President Xi Jinping announced that China will “try to achieve its economic and social goals for this year. In Beijing’s parlance, that means increased stimulus will expand at 7% for the rest of 2022, Hu calculated.
A key element of that campaign was cutting mortgage rates. The central bank cut lending costs by 0.15% in May, with stronger-than-expected moves.
Beijing’s war on big tech, and even though it’s windy, is China’s most confusing market index. Investors have taken heart from the emerging profile of Premier Li Keqiang and his deputy Liu He, seen as leaders of the government’s pro-business wing. “Tech entrepreneurs are the most important agents of innovation,” Liu stated at a conference in May.
The public increase in youth unemployment, which has already reached 18% according to official figures, is also seen as a positive for the tech giants, who were once the power generators. jobs in better days. “It feels like a truce in the tech crackdown, it’s time to get together,” said Jason Hsu, chief investment officer at Rayliant Global Advisors.
Investors differ on how to capitalize on China’s recovery momentum. Tom Masi, co-manager of emerging wealth strategy at GW&K Investment Management, is all in favor of “recovery” stocks that could boom as Covid eases. Options include
Huazhu Hotel Group
(HTHT), the online travel marketplace
Trip.com
(TCOM) and Macau-based casino operator
Sands China
(1928.Hong Kong). “Covid policy could be even tougher next year or so, but there’s plenty of bright skies on the other side of the horizon,” he said.
Hsu leans more towards blue chips like
China Construction Bank
(939.Hong Kong), the center of the stimulus pipeline, and purchased by state investment funds. “They are going back to the old game of driving growth through infrastructure,” he said. “There’s a breeze for boys to love.”
Kelly of PineBridge was more intrigued by the high-yield bonds offered by oppressed real estate developers. The change of the field, starting with flying high
China Evergrande Corporation
‘S
He believes the explosion (3333. Hong Kong) last September, has bottomed out. “We see one or two developers going bankrupt, and about 15 that we can invest in,” Kelly said. “Those surviving companies have gained vitality in the last four to six weeks.”
One thing remains the same in China whether the market is hot or not: Success depends on reading a government that is, at least, reluctant to be read. Signs that there will be less disruption and more free lunches between now and October, when the Communist Party congress convenes, perhaps to hand Mr. Xi a third term, has broken money. rate. “When their tiger mother attitude towards the market makes the market too stimulating, they do something better,” commented Rayliant’s Hsu.
Xi’s intentions for the world’s No. 2 economy deepened after his coronation. The same goes for investment prospects. “This isn’t just a dead cat’s throw,” Kelly said. “But we can’t call it a long bull market until we see what happens after October.”
