Investor sentiment in China has gained momentum as of late. The latest Two Sessions in Beijing confirmed government support for a growth policy, leading optimism to further improve at private banks.
On Tuesday, China concluded its Two Sessions, an annual meeting of the National People's Congress and the Chinese People's Political Consultative Conference held from March 5 to 11.
Beijing indicated a pro-economy policy stance with a growth target of «around 5 percent» for 2025. It set a fiscal deficit target of 4 percent of GDP with higher special government bond issuance quotas suggesting significant support from fiscal policy. The government also underlined a focus on extensive application of artificial intelligence models under its so-called «AI Plus» strategy.
Re-Rating Potential
According to Cheuk Wan Fan, chief investment officer, Asia, global private banking and wealth, HSBC, there is now «further re-rating potential» for Chinese equities led by the internet and tech sectors due to AI tailwinds, improving earnings expectations, compelling risk-reward profile alongside conservative foreign investor positioning and significant valuation discount.
The bank is bullish on AI enablers and adopters from the internet, e-commerce, software, smartphones, semiconductors, autonomous driving, and robotics sectors. It is also positive on consumption, financial and industrial leaders as well as quality state-owned enterprises paying high dividends.
Shifting US Outflows
China could also be benefitting from perceived relative attractiveness compared to the US. According to a Julius Baer note authored by Richard Tang, China strategist and head of research Hong Kong as well as economist Sophie Altermatt, «the search for US alternatives may have lent additional flow support to Chinese equities» which explains why H-shares have performed stronger than A-shares due to higher foreign participation.
«We suggest that investors who have already owned China can maintain their exposure, and those who are looking to add positions can consider broadening out their positions to include the non-technology sectors, such as consumer,» the note added.
«Not a Bazooka»
While the overall sentiment is improving, there are some that remain less optimistic. According to Homin Lee, Lombard Odier’s senior macro strategist, the policy announcements at the Two Sessions could be considered «slightly underwhelming» especially when juxtaposed with factors such as unrealized rumors of special bond issuances worth up to 3 trillion Chinese yuan ($410 billion).
On the doubling of ultra-long special central government bonds to 300 billion yuan to expand the consumer goods trade-in program, he noted that the «average Chinese consumer will not buy eight air conditioners».
«[The announcements were] not a bazooka […] but rhetoric-wise, very positive,» Lee said in a recent media briefing attended by finews.asia.
