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LONDON – Theo JP Morgan.
China’s markets have been battered over the past 15 months, as the country’s “zero-Covid” strategy and major city closures have stifled economic activity, while regulatory crackdowns have put more pressure on businesses, especially domestic internet giants such as Tencent and Alibaba.
High-tech of Hong Kong Hang Seng the index is down about 25% over the past year, while Shanghai Composite fell by almost 9%.
On Monday, the Chinese market continued to fall, entangled in concerns around US Federal Reserve interest rate hikes after US inflation numbers hotter than expected on Friday. The Hang Seng fell more than 3.5%, while the Shanghai Composite fell 1.45%.
However, when China started to reopen and Beijing signals some intention to reduce its scrutiny of the tech sector amid the economic downturn, strategists are turning cautiously optimistic.
JPMorgan Asset Management’s global market strategist Tilmann Galler said that efforts to reopen cities and launch vaccination campaigns show that Beijing has realized a “zero-Covid” strategy. is not sustainable. Instead, the country appears to be moving to a policy of “living with Covid”, he added.
China’s two largest cities, Shanghai and Beijing, eased some Covid measures early last week, but impose some additional restrictions again on friday.
However, speaking at the bank’s annual media event in London on Wednesday, Galler argued that while near-term uncertainties persist, key trends – such as zero-Covid policy , tight fiscal policy and strict regulation – more cyclical than structural, meaning China’s Long-Term Outlook remains intact.
“Policymakers are changing attitudes and changing the direction of policy,” he said. “China is tightening, but this is changing, and the central bank will play an important role in making policy decisions.” there”.
“The People’s Bank of China – compared with other central banks in Europe and North America – they have the flexibility to give more support to the economy.”
China’s top consumer price index rose only 2.1% year-on-year in April, compared with 7.4% in the euro area in the same month and 8.3% in the US. Both accelerated in May.
Galler suggested that as such, further monetary policy easing can be expected from the PBoC, with the benchmark rate for mortgages already lowered.
“More importantly, the direction of fiscal policy is also changing. More government support. Now, there’s more money for rail, infrastructure investment, airport investment, cuts. taxes, incentives to buy cars, for the auto market. is reeling at the moment,” Galler stressed.
Headwinds become whirlwinds
He added that credit growth – which has traditionally been a positive indicator for the stock market – is showing signs of strengthening.
Despite credit growth slumping in April, Galler thinks this is only for the purpose of asking for asset lockouts to be broken and will pick up again when cities like Shanghai and Beijing reopen.
“Valuation in the short-term is a terrible indicator sometimes, but it at least gives you some guidance in the long-term. And while we know the short-term outlook in China is still tough, we still believe that the long-term growth drivers for China are still valid,” Galler told journalists.
“Following the stock market downturn, the P/Es (price-to-earnings ratio) in China is now 20% below the long-term average, so a lot of bad news has priced in. Chinese stocks.”
The P/E ratio is a method of determining a company’s value by measuring its current share price relative to its earnings per share.
“From that perspective, in our view, China stocks are starting to look more attractive despite the headwinds, and we need to consider that some of those headwinds are starting,” Galler said. recessions, and some of them even turned into hurricanes,” Galler said.
While the past 15 months have been difficult for investors in the Chinese stock market, The country’s bond markets have outperformed their global bond markets.
“From that point of view, China is a good diversifier for equities, but also for bonds, because the Chinese central bank has different challenges than central banks in the United States.” Europe and America,” Galler added.
His views are joined by Myles Bradshaw, head of global total fixed income strategy at JPMorgan Asset Management, who said Chinese government debt is the most interesting debt in global markets at the time. present.
“The economy is slowing down, interest rates are up, they’re not easing monetary policy. It’s a great diversifier for your European and US fixed income,” he added.
