Singapore-based DBS is optimistic about a turnaround in the performance of Chinese equities, despite significantly weak sentiments among global investors.
In 2023, China was one of the worst performing major markets, with the CSI 300 registering its third consecutive year of decline with a fall of over 10 percent. Nonetheless, recent signs of economic improvements and tailwinds from government stimulus could trigger a turnaround.
According to DBS, the sharp underperformance of Chinese equities relative to global and emerging market peers should reverse. This is due to attractive valuations, appealing projected earnings growth and the peak of US rates. The bank also forecasts that the China's GDP will grow by 4.5 percent in 2024.
Target Sectors
DBS is constructive on the broader outlook for China and advises investors to focus on themes and industries that stand to benefit from government expenditure and stimulus.
This includes platform companies, AI technology developers, technology services and diversified financials. Large state banks could also gain from yield hunters after the expected decrease in global interest rates.
No Re-entry Yet
Despite the relative optimism, DBS believes that investors should remain patient and wait for more clarity on government support.
«We do not advocate for clients to increase their exposure into China until we see a policy action plan,» said chief investment officer Hou Wey Fook during a recent briefing attended by finews.asia.
Market Outlook
In its broader asset allocation strategy, DBS is underweight on equities and overweight on bonds and private assets. Within equities, it is positive on US tech for quality growth and Asia equities for deep value. On bonds, the bank favors investment grade corporates and measured exposure to private credit funds.
