China growth stocks look like havens as markets confront Omicron

Chinese shares have been more resilient amid the omicron scare. PHOTO: AFP

HONG KONG (BLOOMBERG) - China's Covid-zero strategy seems to be proving a boon for its equities as global markets fret over the Omicron coronavirus strain. Nowhere is this more evident than in the performance of the nation's growth-heavy ChiNext Index.

The gauge dominated by technology and healthcare names climbed as much as 1.6 per cent on Monday even as Asian stocks extended losses after Friday's rout.

Renewables and vaccine shares on the ChiNext jumped as investors looked for safe bets.

In general too, Chinese shares have been more resilient amid the Omicron scare: The CSI 300 Index is down less than 1 per cent from its close on Thursday, while the MSCI Asia-Pacific Index has lost over 2 per cent.

"From China's macro perspective, with the continuing Covid-19 restrictions, I think it's in a better position to handle the new variants," Goldman Sachs Group strategist Kinger Lau said in an interview with Bloomberg TV.

Should the Omicron variant start a new wave of infections, China will be best able to block it, the state-run Global Times newspaper said in a Sunday editorial. The world's most populous nation has maintained its Covid-zero approach - taking extreme measures to curb recent outbreaks, including locking down cities - even as other stalwarts of the policy shift towards living with the virus as an endemic.

As for ChiNext, it continues to benefit from the surge in electric vehicle battery maker Contemporary Amperex Technology, which makes up more than 20 per cent of the gauge. The stock was the biggest point contributor to gains on Monday as well, rising as much as 4 per cent, following news that it will be added to the benchmark CSI 300.

Renewable energy equipment maker Sungrow Power Supply and Covid-19 vaccine producer Chongqing Zhifei Biological Products rallied at least 6.4 per cent each to be the other big boosts.

"ChiNext members have a big chunk of biological firms which soared due to the Covid-19 fears," said Mr Zhang Gang, a strategist at Central China Securities in Shanghai.

In addition, firms that have been benefiting from Beijing's favourable policies on the renewable energy and healthcare sectors are all ChiNext members, he said.

The index's performance has also been aided by the fact that it is safely insulated from the immediate impact of the property downturn in China. It has little exposure to banks, developers or related consumer discretionary shares, a cohort which has seen steepening declines amid dimming sales outlook.

ChiNext's 30-day volatility has fallen to the lowest since the start of 2018, which Mr Zhang said is a reflection of "very good" sentiment.

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