Wall Street’s chorus of ‘buy China’ calls getting louder

Hong Kong - A bullish consensus for Chinese shares is emerging on Wall Street, with new-found optimism around President Xi Jinping’s policy pivots and November’s epic stock rebound prompting some major banks to move away from their long-held bearish views.

Morgan Stanley, notable for its cautious view, lifted its targets for the country’s stock gauges last week, expecting the MSCI China Index to rally 14 per cent by the end of next year. Goldman Sachs is predicting that both the MSCI China Index and the CSI 300 Index will rise by 16 per cent in the next 12 months, the most in Asia.

JPMorgan Chase & Co called the market meltdown in late October a buying opportunity, a breakaway from the bank’s “uninvestable” label for Chinese Internet firms earlier this year.

Driving the confidence among sell-side analysts are the surprise policy shifts in recent weeks, from easing rigid Covid-19 controls to stronger remedies for real estate woes and efforts to improve ties with the United States. The moves have rekindled enthusiasm for the market after a US$6 trillion (S$8.2 trillion) rout that culminated in

last month’s Communist Party Congress,

where Mr Xi’s precedent-defying power grab triggered fears of ideology trumping pragmatism.

The MSCI China Index has jumped almost 24 per cent this month, poised for its best performance since 1999, after losing 17 per cent in October. The Hang Seng China Enterprises Index of Chinese stocks listed in Hong Kong and the Nasdaq Golden Dragon China Index are also in bull market territory, which is defined by a 20 per cent rebound from a recent low.

Global funds have bought around a net 41 billion yuan (S$7.9 billion) of onshore Chinese shares so far this month via trading links with Hong Kong. This is after net outflows of 57.3 billion yuan in October, the biggest since March 2020.

Still, several market watchers have said that execution of the policies announced by the Chinese authorities is the key thing to watch out for over the next few months. It thus remains to be seen if the bullishness from sell-side analysts will lead to sustained flows from real-money investors.

A

resurgence in Covid-19 cases

is already tempering expectations for big changes to China’s zero Covid-19 strategy.

JPMorgan Asset Management sees some US institutional investors continuing to reallocate funds from China to other emerging markets due to challenges and uncertainties surrounding its domestic politics, Taiwan and tensions with the United States.

The recent rally is driven in part by speculators reversing a wave of bearish bets, said Mr Julien Lafargue, chief market strategist at Barclays Private Bank. “We have not seen yet the real buying into China, and I think people will want to see evidence of reopening, better economic data coming out of China before they make that move.” BLOOMBERG