By Nick Hedley
Despite the economic damage caused by China’s “zero COVID”
policy, Bank of Singapore’s investment strategists remain optimistic about the
outlook for equities in the world’s second-largest economy.
The private banking arm of OCBC Bank, Bank of Singapore is
maintaining a defensive approach to global asset allocation – but sees China as
a potential bright spot.
“We remain overweight on Chinese equities as we continue to
see positive long-term risk-reward given distressed valuations which we believe
has priced in significant negatives,” Eli Lee, head of investment strategy at
Bank of Singapore, said in a note.
The U.S. and China recently agreed to preliminary audit
measures for Chinese companies listed on U.S. exchanges, “which signals in our
view that China is
not keen on a complete economic decoupling from the U.S.”
There was previously a risk that Chinese groups would have
to de-list from U.S. exchanges due to concerns around audit controls and
transparency.
And while Beijing’s zero COVID policy is a constraint on
growth – the city of Chengdu was recently placed under lockdown – Bank of
Singapore believes policy changes could be made after the Chinese Communist
Party’s congress in mid-October.
“Policymakers are cautiously monitoring the risks of a
systemic crisis from the housing slowdown, and China’s credit cycle broadly
remains in an upturn,” Lee said.
Officials are paying close attention to the rapidly
weakening labor market situation and will probably act if needed, Lee said. They
have already provided some support.
On August 24, the State Council announced a new round of
fiscal stimulus measures, including support for infrastructure projects, power
generation, and for the housing market. And the People’s Bank of China recently
delivered a small reduction in interest rates.
However, some investors are not convinced, partly because of
ongoing geopolitical tensions.
In a blow to Nvidia and other tech groups, the U.S.
government recently imposed new export restrictions on high-end computer chips
to China.
“Unfortunately, this is what happens when trade wars and
anti-globalization tendencies are the order of the day,” South African wealth
manager Vestact said in a note to clients. “Superpowers have political agendas
and private companies are caught in the crossfire. We'd prefer to live in a
world where international cooperation on technology is assured, but that seems
to be unrealistic.”
Vestact said Chinese stocks were losing their appeal.
“Early backers of giants like Tencent, Alibaba and BYD are taking money off the table. The thought of president-for-life Xi Jinping forever is not all that appealing.”
