Goldman, UBS join bullish bets on global assets as China reopens
GLOBAL markets got a sugar rush when China reverted to pro-growth policies in late 2022, and some are arguing it’s not too late to join the rally.
Chinese equities stand to gain another 20 per cent, oil could renew its push past US$100 and copper may breach US$10,000 as consumption revives in the world’s No 2 economy. Those are just a few of the forecasts from strategists and money managers, with emerging-market stocks and selected Asian currencies also likely to benefit.
The resumption of activity in China promises to unleash over US$836 billion of excess savings and may help ease fears of a global downturn as other central banks continue to tighten policy. But even so, sceptics caution that a hawkish Federal Reserve will still be the dominant theme for financial markets and the world economy.
“We are in the early phase of recovery in terms of asset prices,” said Paras Anand, London-based chief investment officer at Artemis Investment Management. “A recovery or normalisation of the Chinese economy will be positive for global growth at the margin.”
Selective on stocks
Chinese shares may beat their global peers in 2023, with Morgan Stanley and Goldman Sachs Group forecasting the MSCI China Index will gain roughly 10 per cent more while Citi Global Wealth Investments sees about 20 per cent upside.
“This time round the recovery is going to be services- and consumption-led,” rather than investment, which helps local equities more than other economies, said Fidelity International’s George Efstathopoulos.
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Yet others see Asian equities extending gains, even after a benchmark entered a bull market. Exporters such as South Korea and Taiwan will benefit, as well as South-east Asian economies which rely on Chinese tourists, notably Thailand. BNP Paribas predicts the MSCI Emerging Markets Index will rise to 1,110 through year-end.
Commodity choices
Brent crude could average more than US$100 a barrel this year as China, the world’s largest oil importer, dismantles Covid curbs, according to ING Groep analysts. Similarly, the nation’s voracious appetite for copper augurs well for the commodity, with Goldman Sachs forecasting that it will top US$10,000 a ton before end-December.
The reopening will make investors “think twice” about shorting oil despite the demand backdrop in the West, said Louis Luo, an investment director in abrdn’s multi-asset team.
Iron ore is also poised to benefit although gains may be tempered by China’s crackdown on surging prices.
Steel and iron have rallied since the lows reached in October and have “priced in the construction rebound that’s likely to occur”, said David Chao, a global market strategist for Asia-Pacific ex-Japan at Invesco Hong Kong.
Commodity shipments from Indonesia, Thailand and Vietnam are also on the radar after South-east Asia replaced the European Union as China’s top trading partner in 2020, according to HSBC Holdings.
Currencies boost
The onshore yuan has gained about 7 per cent since China started rolling back virus curbs in November. It could climb to 6.50 per dollar this year from around 6.72 now as economic growth rises above trend into the second half, according to UBS Global Wealth Management.
A 60-day correlation gauge between the yuan and emerging-market currencies has risen to 0.70, the highest in five months. The reopening could be especially lucrative for Thailand’s baht and the South Korean won, both beneficiaries of Chinese tourism. The Chilean peso will also climb amid rising Chinese demand for copper.
“We think this is a real turning point for the Chinese economy, its underlying assets, and the broader emerging market universe,” Alan Wilson, money manager at Eurizon SLJ Capital, wrote in a Jan 6 note. BLOOMBERG
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