File photo shows the exterior view of Shanghai Stock Exchange at Pudong New Area in Shanghai, east China. (Xinhua)
BEIJING, July 24 (Xinhua) -- Since the beginning of this year, a series of complex factors have emerged, such as the banking crises in Europe and the Untied States and global geopolitical tensions. The performance of the global capital markets has not been calm, and the Chinese capital market is also facing tests.
Several well-known foreign institutions have recently expressed views that the Chinese economy is expected to experience a significant recovery in the second half of the year, and the demand for cross-border allocation of Chinese assets by foreign investment is still expected to continue. Although A-shares may remain volatile in the short term, structural investment opportunities are emerging as various industries continue to recover.
-- China’s renewed economic vigor a pivotal driving force for Asia's growth
Hu Yifan, chief investment officer and macroeconomic director for Asia Pacific at UBS Wealth Management, said that several stock markets in Asia achieved good results in the first half of the year, such as markets in the Republic of Korea and Japan, which performed well and were not affected by the tightening of monetary policies by multiple central banks around the world and the turmoil in the U.S. banking industry.
Looking ahead to the second half of the year, under the background of strong domestic demand, declining inflation and monetary policy support, economy of Asia may outperform that of the U.S. and Europe, Hu noted.
Rob Subbaraman, director of Global Macro-research and co-director of Global Market Research Department of Nomura, was also optimistic about the performance of Asia.
He stated that inflation levels in emerging market countries have decreased faster in comparison with the developed economies in the U.S. and Europe .
The slowdown of global economic growth prospects and the end of policy interest rate hikes may stimulate investors to look for new opportunities, Subbaraman said, adding that healthy economic fundamentals should not be ignored and Asia meets this condition.
As the engine of the economic growth of Asia, China’s economy will maintain a steady growth, and the recovery of consumption should continue to advance. Given that systematic risk are controllable, China may introduce targeted policies to stablize growth, according to Hu.
Hu said that the growth rate of the Chinese economy in the second half of the year will be more stable within the range of 5 percent to 5.5 percent. Driven by a strong rebound in the service industry and stimulus policies for car consumption, the annual consumption growth rate is expected to be around 8 percent.
Santiago Millán, macro-strategist of Wellington Management, predicted that the Chinese economy will remain strong this year, with economic indicators and profits exceeding expectations. The service industry will recover its upward momentum ahead of the manufacturing industry and show significant growth potential.
The economy of Asia which is bolstered on China’s economic rebound will continue to grow rapidly in this year, Santiago Millán said, adding that as in 2022, developing countries in Asia will become the main beneficiaries of this trend, especially those countries with developed tourism industry.
-- Strong demand for cross-border asset allocation
Since the beginning of the year 2023, the net purchase of Chinese A-shares by foreign investors through the Shanghai and Shenzhen Northbound Trading Link has exceeded the total net purchase amount for the entire year of 2022, with a purchase amount of 141.29 billion yuan in January, more than 50 percent higher than the previous record of monthly net purchases.
Foreign institutions believe that from the perspective of cross-border asset allocation, there is still a lot of room for improvement in the proportion of foreign investment in the A-share market, and it is expected that the trend of foreign investment adding to A-shares will continue in the second half of the year.
The latest weekly data released by EPFR Global, a fund flow monitoring and research institution, shows that China’s stock fund have attracted more than 1 billion U.S. dollars for the 16th time this year among the emerging market stock funds tracked by EPFR Global in the week ending July 12.
Wang Zonghao, strategy analyst of UBS China, said that as profits continue to recover, the valuation of the A-share market may moderately rebound.
In terms of funds, abundant macro liquidity will partially flow into the A-share market, and northbound funds may also return with potential market performance recovery.
Xu Wei, executive director of MSCI Asia Pacific Equity Research Department, also believes that overseas investors have recently re-entered the onshore market in China, perhaps hoping to find potential investment opportunities from its weak correlation with global stock markets.
-- A-share valuations with relative attractiveness
Among the reasons for allocating the Chinese market, many foreign institutions have mentioned that the risk-return of the Chinese market is highly attractive due to the current undervaluation and future profit improvement potential.
UBS stated that the future growth momentum of the Chinese economy will gradually increase. The superposition effect of low base and the reduction of the cost of listed companies is expected to make the earnings per share of MSCI China Index grow steadily by 15 percent in 2023.
According to UBS, the valuation of the Chinese market at present is 1.2 standard deviations lower than the historical average, and thus the current risk-return is still attractive.”
Wang Ying, chief equity strategist of Morgan Stanley China, stated that a crucial factor affecting global investors’ capital allocation is valuation.The Chinese stock market has a certain attractiveness for global investors whether its absolute valuation or relative valuation.
In terms of specific allocation direction, Morgan Stanley pointed out that it still preferred consumer categories, as the biggest difference between this round of economic recovery and previous economic recoveries is consumption, especially the stronger driving force of service consumption. Meanwhile, the institution suggests selectively allocating raw material sector, industrial sector and technology sector.
In terms of long-term investment, the current valuation of themes with Chinese characteristics, such as state-owned enterprise reform and enterprises that use special and sophisticated technologies to produce novel and unique products, and “little giants” firms, is relatively attractive compared to their growth prospects, according to Goldman Sachs. (Edited by Yang Yifan with Xinhua Silk Road, yangyifan@xinhua.org)
A single purchase
