China’s uncorrelated stocks are turning into a one-way bet for money managers while policy, regulatory risks stay elevated

Name: Tens of millions under lockdown in China following outbreak of Covid BA.5 subvariant
Uploaded: 2022-07-14T23:30:19.000Z
Duration: 2 min 1 s
Description: Tens of millions under lockdown in China following outbreak of Covid BA.5 subvariant

Many funds are turning more bullish on Chinese stocks to shelter from risks related to aggressive policy tightening in major economies

While the outlook has become less bearish, Chinese stocks remain susceptible to policy, regulatory and Covid-related shocks

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A man stands in front of the jumbo screen showing the latest economic and stock updates in Shanghai on June 23. Photo: EPA-EFE

Zhang Shidong,Cheryl HengandYaling Jiang

Published: 7:30am, 15 Jul 2022

Global funds are turning China’s uncorrelated stocks into a one-way bet by banking on monetary easing while other major central banks are tightening, opening themselves to risks from policy and regulatory shocks and lockdown jitters.

AllianceBernstein, Amundi and Credit Suisse are among a horde of money managers and investment banks calling for a bullish second half. Goldman Sachs predicts Chinese stocks will climb by 16 to 19 per cent by year end from here, while UBS Wealth Management sees a major rebound for the index to log a 10 per cent annual gain.

This week’s wobble, stoked by a surge in coronavirus cases in mainland China, a shutdown in Macau and new penalties on tech companies, suggests that it will not be a smooth ride. BlackRock, the world’s biggest money manager with US$9.6 trillion of assets, remains sceptical after downgrading Chinese stocks in May, while PineBridge Investments is also not convinced.

“The green shoots of recovery emerging in June are at risk as China’s daily number of new locally transmitted Covid-19 cases has gone up,” Redmond Wong, a strategist at Saxo Markets in Hong Kong, said in a note on Wednesday. “As China is ‘unwaveringly’ holding onto its zero-Covid policy, risk premiums have started to rise again.”

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Tens of millions under lockdown in China following outbreak of Covid BA.5 subvariant

The MSCI China Index, which tracks 717 stocks with a market value of US$2.3 trillion at home and abroad, has retreated 5.1 per cent this week, according to Bloomberg data. The gauge has risen 19 per cent from a five-year low on March 15. Tencent Holdings, Alibaba Group and Meituan and JD.com are the four biggest index members.