More time is needed for Chinese earnings to bottom out before a better picture is materialized, according to Pictet Wealth Management which advises investors to take a wait-and-see approach before adding exposure.

Although Pictet Wealth Management advises against making immediate bets, it is making the case for a review of Chinese equities very soon.

«We are getting to a very interesting point because the market has been over the last three months trying to digest the effects of regulations on those companies that almost everyone has in their portfolios which are the large tech companies,» said Pictet Wealth Management’s Asia chief investment officer Alexandre Tavazzi in a recent virtual roundtable attended by finews.asia.

«According to our analysis, we are getting to the end of that process. Maybe two months ago, the valuation levels we were seeing could not be really trusted because the process of adjusting the earnings side was not fully completed. We think we are getting there.»

Policy Support

More importantly, Pictet is seeing increasing support from Chinese policymakers as a reason to prepare for a positive turn.

Real estate companies, for example, have been allowed to finance via the interbank market or through issuances of asset-backed securities. The central bank has also recently made cuts to banks' reserve ratio requirements to further fuel the economy. 

«You are starting to see some stabilization measures taken by the authorities,» Tavazzi said. «Not yet the measures to allow the economy to grow faster but at least to stabilize.»  

ASEAN, For Now

Within the region, Pictet is most bullish on ASEAN equities with the view that their delayed economic recovery will occur in 2022 and translate into higher corporate earnings alongside boosts from various contingency plans to diversify supply chains.

«It’s not yet the case for China,» Tavazzi reiterates, adding that 80 percent of client discussions are currently centered around the second largest economy. 

«We are still waiting for the revision of earnings to reach the bottom but it is definitely on our radar screen. We are just waiting for the right timing to enter.»