Investor pessimism in Chinese equities has peaked, according to Deutsche Bank which is calling now a good time to begin revisiting the market.
After a strong start to 2023, Chinese equities erased all gains made following a reversal in April due to weakness in economic indicators across the board, including disappointments in consumption and labor market recovery.
But according to Deutsche Bank International Private Bank (IPB) APAC chief investment officer Stefanie Holtze-Jen, now is a good time to begin revisiting the market.
Easing Tensions, Government Support
Holtze-Jen highlighted several areas that are acting as tailwinds for the Chinese market including relatively attractive valuations, easing geopolitical tensions and government commitment to stimulus.
On geopolitics, there are signs of improving relations with the US and willingness by both to de-risk following a visit to China by Secretary of State Antony Blinken. And on stimulus, the government is rolling out various supportive measures, particularly in monetary stimulus where the People’s Bank of China is under relatively less pressure to balance interest rate policy with inflation or recession risk.
«Now, investing in China is looking more interesting. We’ve seen a lot of outflows in the market […] but with all these measures, we are ready to see the rabbit hop again,» Holtze-Jen, referring to the Chinese zodiac sign for 2023.
Contrarian View
Holtze-Jen admits that the positive view on China is currently relatively unpopular but she highlights a similar occurrence when Deutsche Bank turned bullish early on China’s reopening in late 2022 while other investors were still demonstrating doubts about the transition out of the lockdown.
«It is very contrarian at this moment in time but the probability is much higher for that market to be able to pick up on the back of the right measures,» she said.
«I can hardly see where there’s any more pessimism that can come in. Peak pessimism [in the equity market] has ended.»
