Why we like Chinese equities in the face of the global Covid-19 challenge

GLOBAL capital markets are going through unprecedented times with selling pressure mounting almost everywhere. The dual impact of the Covid-19 halting economies and the oil price's sharp decline roiling credit markets will trigger a year-on-year contraction in global economic growth in H1 2020, with full-year growth ending at a subdued 0.9 per cent, according to Morgan Stanley's forecast. This would be the lowest since the global financial crisis in 2009, when annual global growth dropped to -0.5 per cent.

Acute global demand decline, tightening liquidity conditions, and a strengthened USD index are usually associated with disappointing emerging market (EM) equity performance.

We have cut 2020 earnings growth forecasts and price targets three times since Covid-19 broke out in late January to reflect its impact - from regional to global, from weeks to months. However, we believe China is best positioned to outperform the broad EM equities, and we have been advising investors to overweight China in their portfolios since March 1. Our 2020 MSCI China base case price target is 75, implying another 4 per cent upside from the March 20 market close.