After a disappointing first half, Standard Chartered is turning positive on Chinese equities due to expectations of government stimulus and easing geopolitical tensions.
Standard Chartered expects Chinese equities to perform in line with the broader Asia ex-Japan market, according to a research report, where it has an overweight position and the strongest conviction of all regions.
«Economic data has been under-delivering, but the Chinese government is likely to continue with targeted stimulus to support growth,» said a report by the bank’s wealth management chief investment office.
«Visits from prominent US business leaders and key officials from the US government suggest a potential thaw in US-China relations, soothing geopolitical concerns – one of the key headwinds in H1 23 – in the short term.»
Growth Outperformance
In terms of the economy, Standard Chartered expects China to exceed Beijing’s 5 percent target in 2023, despite the slowdown of the post-pandemic recovery.
«Building disinflationary pressures mean China’s policymakers are likely to sustain monetary and fiscal stimulus to support ‘quality’ growth,» the bank said.
«The [People’s Bank of China] cut rates in June, while authorities have rolled out incentives to support home buyers and boost household goods consumption. We expect more support, including for the property sector, in H2.»
Communications, Consumer
As a result, Standard Chartered has «buy views» on the communication services and consumer discretionary sectors in China.
«We see attractive opportunities in these sectors, given the support from earnings, policy direction and consumer spending, which contrasts with poor sentiment on the broader market, driven to a large degree by worries related to the real estate sector,» the bank explained.
In addition to its overweight Asia ex-Japan position, the bank is also positive on India and has an overweight position on Japan.
