Despite disappointing economic data, China’s outlook remains positive, according to Standard Chartered which advised investors to hold exposure to the country’s financial markets.
In April, China delivered underwhelming economic indicators leading some to question if the market rebound following the end of the country's zero-Covid regime is over. Manufacturing and exports disappointed, retail sales did not meet forecasts and property-related sectors remain under pressure.
«China’s economic data have underwhelmed lately after a strong start to the year, dragging Asia ex-Japan asset returns. This has also raised doubts about the sustainability of the post-pandemic rebound,» said Standard Chartered in a note to wealth management clients.
Green Shoots
Despite the worries, there are «durable green shoots» for China, according to Standard Chartered’s wealth management chief investment office.
This includes a «much stronger» earnings outlook compared to the US and Europe; continued policy support by Beijing in contrast with tightening elsewhere; and inexpensive valuations for China dollar-denominated bonds and equities.
Investment Strategy
Against such a backdrop, Standard Chartered advises investors to use recent weakness to build exposure in Asia ex-Japan assets.
The bank remains overweight on the region's stocks and bonds. It is particularly bullish on Asia US dollar bonds on a 12-month horizon «given the asset class’s predominantly investment grade feature and low volatility». Within Chinese equities, strong first quarter earnings boosted the bank’s conviction in consumer-based equity sectors like consumer discretionary and communications services.
«We believe the case remains for retaining exposure to China assets within a diversified Asia ex-Japan and global allocation,» the bank said.
