November’s rotation-driven surge in Chinese stocks and credit has made them among the globe’s best performers. — Reuters
BEIJING: A virtuous circle is forming in Chinese assets as gains spurred by signs the nation is rolling back zero-Covid drives more investors to chase the rally.
November’s rotation-driven surge in Chinese stocks and credit has made them among the globe’s best performers.
An index of the nation’s US-listed shares climbed a record 42%, the Hang Seng China Enterprises Index gained the most since 2003, property stocks have jumped 61% and high-yield dollar bonds rose 20%.
The yuan spiked up on Wednesday as Beijing said it will allow some residents to skip mass Covid tests.
Despite the gains, swaths of Wall Street’s investing elite are yet to be drawn in. Long-only equity funds remain unconvinced, retail investors reluctant, and speculators are only in it for the short haul or simply covering shorts, data appear to show.
US hedge funds are still selling with outflows from Chinese stocks of almost US$3bil (RM13bil) this quarter, Morgan Stanley says. Mom-and-pop investors have mostly stayed on the sidelines, with exchange-traded funds such as KWEB, MCHI and FXI attracting only a trickle of inflows.
Optimists say the light positioning sets the stage for more gains in coming months as global investors are forced to rebuild their weightings in China.
Long-only actively managed funds cut their Asian stock exposure to an eight-year low before November, with China seeing the biggest reduction, according to Bank of America Corp’s analysis of 1,300 funds managing US$1.8 trillion (RM7.9 trillion).
“Right now there are low-hanging fruits in China,” Daniel Lam, head of equity strategy at Standard Chartered Wealth Management, said on Bloomberg Television on Wednesday. “The market had a great November but started off at a very terribly low base – don’t forget that.”
Investors have for months been struggling to find reasons to turn more positive on China. A shift away from the strict zero-Covid policy would have such huge ramifications for the economy that the fastest-moving funds want to get ahead of the news. They were bought in early November on the basis of screenshots of unverified documents on anonymous social media accounts suggesting officials were preparing to wind back some of the restrictions.
They’ve gathered more evidence since. China’s top official in charge of the fight against Covid-19 said the country’s efforts to combat the virus are entering a new phase with the Omicron variant weakening and more Chinese getting vaccinated.
Authorities are also seeking to minimise the economic and social costs, this week criticising excessive containment measures. The central government in November also delivered a plan to rescue the property industry, suggesting a pivot to a more supportive economic policy.
November’s rally was “desperately needed,” said Carl Wong, a managing director at Gopher Redwoods Asset Management in Hong Kong. — Bloomberg
