Is It Time To Upgrade Chinese Stocks?

It may be the moment to buy Chinese stocks, investment analysts say. Foreign banks have stayed away from the world’s second largest stock market as the pandemic stunted the economy and regulatory uncertainty grew. With indications that the Chinese government may be encouraging growth, however, some investment firms are being less cautious.

Credit Suisse, for instance, upgraded Chinese stocks, reversing its outlook of 12 months earlier, according to its 2022 global stock strategy report. An easing of monetary policy in China was cited, compared to a constriction elsewhere. In late September, BlackRock Investment Institute and several others also noted positive performance, while other firms remained neutral.

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Analysts, in determining their positions, have considered how much stocks have fallen in light of their capacity for earnings. According to the investment research firm Bernstein, China’s growth in new financing, easy monetary policy, and attractive stock valuations make a case for adding the market to global portfolios. Bernstein also points to increasing foreign inflows and earnings as well as an unusual opportunity to pick stocks.

Goldman Sachs, which turned overweight on Chinese shares in February 2020, has invested in Chinese stocks because of the accessibility to foreign banks and under-allocation to the share class, according to an 89-page report released this past January. The report forecasts 16% in gains for the MSCI China index this year.

Similarly, UBS and HSBC announced in October that they were upgrading Chinese stocks. HSBC analysts forecast 9.2% gains this year for the Shanghai composite and 15.6% for the Shenzhen component index.

Some firms–Morgan Stanley, Bank of America and J.P. Morgan Asset Management, for example–are not jumping in so fast. BofA Securities, according to CNBC, expects corporate earnings growth to decline in China, despite the existence of certain investment opportunities.

After the Chinese Communist Party’s 20th National Congress in March, at which President Xi Jinping is expected to be given a third term, analysts expect regulatory unpredictability to wane.