KGI Asia picks 9 stocks for China reopening bets with Hang Seng to rally 20 per cent while Fed tempers rate hikes
- Broker picks AIA, CTG Duty Free, JD.com among nine bets for China reopening play with Hang Seng Index seen advancing by 8 to 20 per cent in 2023
- Cooling US inflation and slower Fed rate increases could support stock markets
The broker forecasts the Hang Seng Index will climb to 21,100 points in 2023 in its base-case scenario, with benchmark stocks priced at 10.3 times corporate earnings. That implies an 8.4 per cent gain. The index could gain 20 per cent to 23,300 points in its best-case scenario.
The recovery in China’s property sector and how fast its pandemic measures are relaxed “should have a significant impact” on the economy through 2023, KGI said in a report published on Monday. The stock market stands to profit from “slower rate hikes and cooling inflation” in the US, it added.
03:27
China further eases pandemic restrictions in latest step towards reopening after zero-Covid
“The second quarter is a crucial time when the visibility of the economy and policies may improve substantially,” said Kenny Wen, KGI’s head of strategy based in Hong Kong. A diversified and balanced allocation of stocks and bonds can help weather market fluctuations, he added.
China has tweaked its zero-Covid policy by rolling back some of the toughest measures, including scrapping daily mass testing and stringent quarantines following signs of steep losses in manufacturing and consumption. The “reopening playbook” has fuelled a 33 per cent rally in the Hang Seng Index from a 13-year low on October 31, helping restore US$1.1 trillion of capitalisation across the city’s stock market.
KGI also picked China Resources Beer, China Telecom, Bank of China (Hong Kong), Swire Pacific, CGN Power and Dongfang Electric among its preferred stocks in the strategy report.
11:31
As mainland China reopens, what is the market outlook for the mainland and Hong Kong?
Still, investors will need to prepare for potential headwinds, including forecasts for a mild recession in the US for two to three quarters next year, KGI said. It pegged the odds of the Fed continuing to raise rates at 35 per cent, while chances of status quo and lower rates are pegged at 45 per cent and 20 per cent each.
China being “back to normal” will be a major investment theme for next year, according to Invesco, with expectations for improvements in domestic consumption, stock valuation and energy security. Chinese equities will be the best performing asset class in the region.