Place your bets on Chinese stocks to beat global peers in the next six months on policy divergence, BCA Research says

The MSCI China and Hong Kong indices are likely to outperform their global peers in the next six months as monetary policies diverge, BCA strategist says

Chinese stocks represented by both indices are in oversold territory while a stronger dollar could support returns in local stocks pegged to the US currency

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Cyclists seen on the street next to the large screen showing stock exchange data in Shanghai in November 2021. Photo: EPA-EFE

Published: 11:11am, 20 Jan 2022Updated: 11:51am, 20 Jan 2022

Chinese stocks, among the worst performers in 2021, are likely to outperform global peers within the next six months, offering protection from a sell-off stoked by higher US Treasury yields, according to BCA Research.

Investors should favour stocks in the MSCI China and MSCI Hong Kong indices over global benchmarks, as a divergence in monetary policies in China and the rest of the world creates room for outperformance, the Montreal-based company said in two new tactical trades on January 19.

“Chinese investible stocks are in oversold territory and are likely to rebound in the near term in both absolute and relative terms” and offer good value, strategist Sima Jing wrote in the report. “The Hong Kong equity index is also technically oversold. Since the composition of the index has become more defensive, it is likely to outperform in risk-off phases.”

Both indices have outperformed their US and global peers in the opening weeks of this year, according to Bloomberg data. The MSCI China Index slipped 0.4 per cent while the Hong Kong index gained 2.9 per cent, damaged by regulatory crackdowns while US and global stocks lost more than 4 per cent.

Last year, they fell by 24 per cent and 6.4 per cent respectively, while the S&P 500 and MSCI World Index rallied for a third year to record highs.