There is widespread investor bearishness against China but there are signs of improvement that could make this a good time for a contrarian call, according to Indosuez Wealth Management CIO Alexandre Drabowicz.
Investor confidence in China has soured after a highly anticipated reopening failed to trigger a market rebound, following three years of grueling Covid-linked restrictions. Markets posted a brief rally in January before trending lower and the CSI 300 is now down nearly 5 percent year-to-date.
«What is for sure today is that everybody is super bearish on China,» said Indosuez Wealth Management chief investment officer Alexandre Drabowicz in a recent briefing attended by finews.asia. «People actually don’t believe any more in the China story. There are a lot of question marks.»
Failed Reopening
According to Drabowicz, foreign investors have been heavily unloading exposure in the last six months after also heavily entering the market in 2022, trusting that the post-reopening environment would result in a strong rebound in the economy as well as markets.
«Everybody was very, very optimistic about the China reopening. People were waiting for this for a long time and it failed,» he said.
Valuations, Flows
Despite the widespread confidence loss, Indosuez Wealth Management is currently positive on Chinese equities. Its optimism is driven by two factors: attractive valuations and improving flows.
On valuations, Indosuez noted that Chinese equities were trading at attractive levels of around 10x future earnings, compared to 20x future earnings in the US. And on flows, the bank observes improvements in the domestic investor base, citing sharp asset growth recently in China’s largest onshore ETF tracking the CSI 300 index.
«This gives us a little bit of comfort [in the belief] that we have reached the trough and we have the capacity to move upwards,» Drabowicz added.
