After a strong surge in late September, Chinese equities have moderated and stayed relatively rangebound. Many clients are inquiring about whether or not the rally is legit with another leg to come, according to Deutsche Bank’s Stefanie Holtze-Jen.
In September, China’s benchmark CSI 300 skyrocketed by around 35 percent after a multi-year decline since early 2021. The rally occurred on the back of Chinese authorities announcing the largest stimulus package since the pandemic which included a reduction in the reserve requirement ratio.
Markets took this as a signal towards greater government focus on boosting economic growth. Since then, there has been much spotlight on further support, most notably the prospects of significant fiscal stimulus.
«Many Investors Missed Out»
After an extended period of ruling out the Chinese market, many investors have been reconsidering. According to Stefanie Holtze-Jen, Deutsche Bank Private Bank’s APAC chief investment officer, there haven’t been so many conversations with clients about China since the announcement of the stimulus package in September.
«They are all asking if this rally is for real because there has been so much negative rhetoric and many investors missed out,» she said in a conversation with finews.asia. «We remain constructive due to structural reforms, monetary stimulus and fiscal stimulus. We sense that the sentiment and narrative are changing for the better. If you haven't invested in the first place, then you need to start investing in China.»
The bank's preferred sectors include renewable energy, IT and consumer discretionary.
Risks From Trump 2.0
One of the key areas of concern for those interested in investing in China is the risk of derailing due to possibly aggressive US policies under President-elect Donald Trump. However, Holtze-Jen believes that China is much better positioned to withstand any potential shocks this time around.
«Although tariffs are one of Donald Trump’s favorite words, it remains to be seen if they will play out one-to-one in Asia or if it is more of a negotiation tactic,» she explained. «Nevertheless, China has already de-risked much of its exports to the US via other countries. There is a much larger embedding within Asia so we don’t think there will be any disaster scenarios.»
Consumer Demand Still Uncertain
On Monday this week, a meeting by the Politburo – a major decision-making body of the Chinese Communist Party – led to even more optimism about government support. Following the meeting, officials said that China would adopt policies to boost domestic demand in 2025 with monetary tools that are «moderately loose». The last time the phrase «moderately loose» was used was during the aftermath of the global financial crisis in 2009.
Domestic demand is key for China as it has struggled to achieve a turnaround since the pandemic as consumers have stubbornly saving rather than spending.
«But whether, in the end, the local consumer is really coming out of their shells, that is something I think we need to wait and see,» Holtze-Jen added.
