Zero-Covid: China reopening presents ‘great opportunity to buy’ Chinese stocks with valuation upside, Bank of America says

Name: As mainland China reopens, what is the market outlook for the mainland and Hong Kong?
Uploaded: 2022-12-06T23:30:09.000Z
Duration: 11 min 31 s
Description: As mainland China reopens, what is the market outlook for the mainland and Hong Kong?

‘It is a great opportunity to buy the dips in the next few months’ while doubts about reopening path persists, co-head of China equity research Winnie Wu says

Corporate profits should see a double-digit growth next year, supporting an expansion in price-earnings multiple

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Helen Qiao, left, chief Greater China economist, and Winnie Wu, co-head of China equity research, of BofA Global Research. Photo: Edmond So

Enoch Yiu

Published: 7:30am, 7 Dec 2022Updated: 8:55am, 7 Dec 2022

The markets might have already bounced back, but there is still “a great opportunity to buy” China stocks in the next few months, according to analysts at Bank of America.

China is in the process of reopening and doing away with its tough Covid-19 restrictions, but there are “still a lot of doubts about the path towards reopening and about economic recovery next year,” Winnie Wu, co-head of China equity research at BofA Global Research, told the Post. “Our view is that it is a great opportunity to buy the dips in the next few months.”

The MSCI China Index, a gauge tracking about US$2 trillion worth of Chinese stocks listed at home and abroad, has jumped 37 per cent during the past five weeks, tempering this year’s decline. The index’s forward price-to-earnings ratio currently stands at only 10 times, Wu said, which is higher than the eight times seen during its recent low point in end-October, but is still below the normal level of 12 to 13 times.

11:31

As mainland China reopens, what is the market outlook for the mainland and Hong Kong?

Thus, there is still room for a 20 to 30 per cent expansion in valuation in the next few months as “we should see double-digit corporate earnings growth” alongside the macro economic rebound after China reopens, Wu added.

Two sets of stocks will be the biggest beneficiaries of China’s reopening, she said. The first set will be firms that will benefit directly – hotels, beers, transport, airlines and airports, as well as Macau casino operators. Their business will increase when people are free to travel.

“Another important basket to consider are large-cap index, heavy liquid, high beta names,” Wu said.

02:19

Beijing begins to ease Covid rules, but business areas remain deserted

“Many investors have been underweight in China,” she added. “With China reopening, they will be under pressure to catch up.”

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