China stocks are a buy on reopening, top money managers say

THE world’s top fund managers are mostly bullish on Chinese stocks for 2023, predicting that equities will continue to rally as strict coronavirus measures are relaxed.

About 60 per cent of respondents in a Bloomberg News survey recommended buying the country’s stocks, while 31 per cent said they are a sell. On top of optimism about China’s reopening, easing geopolitical tensions and cheap valuations are reasons to buy, according to the informal survey of 134 fund managers.

“It does seem like there is an evolution from China in terms of their Covid approach,” said Ben Powell, Apac chief investment strategist, BlackRock Investment Institute. He sees upside potential for earnings in China, and downside potential in the US and Europe.

After a rough year, Chinese stocks are ending 2022 with a big rebound. The Hang Seng China Enterprises Index stormed into a bull market in November, and is now up 38 per cent since its October low, after surprise policy shifts from China’s government on Covid controls and supportive measures for the property sector. The gauge is still down 44 per cent from its February 2021 peak.

Investors in the survey also see China’s stocks as attractively valued. The MSCI China Index is trading at 11 times forward earnings, below the average level for the past five years. And while the 12-month earnings forecast for the MSCI China Index has risen in the past month, it’s still well below pre-pandemic levels, Bloomberg data shows.

The bullishness on China was echoed last week by JPMorgan Chase strategist Marko Kolanovic, who said in his 2023 outlook that he’s still positive on the country amid favourable monetary conditions and an eventual full reopening.

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Still, not all survey participants were so positive. Fund managers said the biggest risks for Chinese equities are uncertainty about government policy and regulations. 

“Headwinds remain, on the geopolitical front, on the reopening from zero-Covid policies, and on the regulatory environment,” said Fabiana Fedeli, CIO for equities, multi-asset and sustainability at M&G Investments. While there are opportunities in China, investors need to be selective, she said. BLOOMBERG