Chinese stocks will continue to outperform global peers as UBS wealth managers join bull camp on second-half outlook

Chinese actions are set to rebound strongly in the second half of this year, with the economic recovery providing a tailwind for corporate earnings, UBS wealth managers say, joining a chorus of positive sentiment from global funds.

The MSCI China Index, the broadest gauge of stocks listed in mainland and offshore markets, could end the year with a 7-10% gain from 2021, according to Hu Yifan, chief investment officer for Greater China. at UBS Wealth Management in Hong Kong.

“We are particularly optimistic about the Chinese market in the second half, mainly because the recovery of the economy would be a certain event,” she said during a press briefing on Wednesday. “We estimate that the profits of [Chinese] business for the full year could increase by 10 percent.

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In the near term, UBS is bullish on companies in the digital economy, electric car supply chains, renewable energy, cyclical stocks and value stocks in the energy and banking sectors, said added Hu, without distinguishing specific actions.

The MSCI China index, which tracks 739 companies with a market capitalization of US$2.1 trillion, is expected to climb as much as 24.6% in the second half to hit the high end of UBS’s annual target. The gauge advanced 5.7% in June, the best in 17 months, while global stocks fell 8.6% into bearish territory.

Goldman strategists have remained bullish on Chinese stocks despite this year’s sharp swings, after the index fell 21.6% in 2021 and hit a two-year low in the mid-March rout. Credit Suisse said Chinese stocks were still cheap and it was not too late to fish near the bottom of the market.

Is it too late to chase Chinese stocks? Not for Credit Suisse, while others worry about zero Covid pain

Even so, China’s zero Covid policy remains a double-edged sword. Uncertainty surrounding its approach is a source of discomfort for fund managers, according to PineBridge Investments, which manages about $83 billion in assets in the Asia-Pacific region.

“Covid measures will continue to be the main driver of economic growth trend reversal in the near term,” said Cynthia Chen, Asia ex-Japan equity portfolio manager at PineBridge. “China’s zero Covid policy has changed the country’s growth trajectory and further reduced market correlation with the rest of the world.”

While measures to ease some of the toughest curbs inspired the recent market rally, China continues to defend its approach amid costly pains in terms of factory production disruption and job losses. China has understood how it could “harm the economy”, President Xi Jinping has said. said last month.

Shanghai ordered mass testing in nine of its 16 districts this week after confirming new Omicron infections, reigniting concerns over a repeat of a citywide lockdown in the city of 25 million. . The Hang Seng Index was trading near a two-week low in Wednesday’s talks.

While China’s Covid-19 measures helped foster the strongest rebound a year after the pandemic, that edge has started to fade, Chen added. A slowdown in exports, geopolitical risks, a national crackdown on tech companies and excessive leverage in the real estate sector undermined risk appetite.

Fund flows suggest investors are bullish on Chinese equities. Foreign investors poured $11 billion into onshore Chinese stocks in June through Stock Connect’s northern channel, according to data compiled by Goldman Sachs, compared with $21 billion in sales in Asia-Pacific stock markets.

Hu expects the recent outperformance of the MSCI China index to persist as China adjusted its zero-Covid policy to deal with Covid-19 outbreaks. Easing of domestic policy is also a favorable trend, she added, attracting funds away from markets that face aggressive tightening and recession risks, such as in the United States and other major countries. savings.

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Dolores W. Simon