Bank of Singapore is the latest wealth manager in the region to turn positive on China, highlighting that the policy tightening for the internet sector has peaked.
A growing number of banks and investors are turning positive on China tech almost two years after Ant’s mega IPO in October 2020 was canceled. Although that heralded a massive crackdown on web-based platforms then, voices are now becoming louder in the market that the worst is over from a regulatory perspective, with the Bank of Singapore being the latest to join the camp.
«We expect that the peak of policy tightening has passed us and mainly here, from here going onwards, we are heading back to a normalization stance,» said Bank of Singapore’s China equity strategist Louisa Fok in a recent webinar attended by finews.asia. She also indicated that the bank had a «constructive outlook» on Chinese markets for the remainder of the year.
Onshore Preferred
The main tailwinds driving the Bank of Singapore's preference for China, especially relative to developed markets, include the country’s easing monetary policy bias, particularly compared with steps being in the west, as well as a post-pandemic environment featuring fewer mass restrictions or lockdowns.
But despite its positive view of the regulatory environment for the internet sector, the Singaporean private bank has a preference for onshore equities against offshore equities, even though the latter are mostly made up of platform companies currently trading at a discount. That is because onshore equities have lower correlations with US markets. They also stand to potentially benefit from domestic government policies, such as steps to support renewable energy or the electric vehicle industry.
Bumpy Rebound
Nonetheless, the Bank of Singapore believes that there won't be any straightforward rebound in prices. The bank highlights three major challenges. Property bonds near maturity will continue to be a source of market volatility, as will more potential earnings downgrades and continued geopolitical tensions between the US and China.
«I do not expect that the recovery path will be smooth or that the market will go on an uptrend in a 45-degree angle without ups and downs,» Fok said.
No Consensus
Elsewhere, some banks are still cautious related to both the Chinese market and possible further monetary steps or stimulus measures by the government.
According to Julius Baer, it may take a little more time before the bank turns bullish on China as it eyes the scale of upcoming monetary and fiscal stimulus as a key driver in any sustained recovery.
«Big tech platforms are still subject to uncertainties,» said Lombard Odier’s Asia chief investment officer Jean-Louis Nakamura.
«Yes, the government and the authorities in China have claimed that the bulk of regulatory tightening was behind us so there’s no more bad news to expect. We want to see it first to completely believe it,» he added.
