Global investors see Chinese equities to last until 2021

SHANGHAI (Reuters) – Global investors are betting that Chinese equities will extend their bull run and that mainland China companies’ earnings in 2021 will be spurred by a global economic recovery and more predictable Sino-US relations.

Chinese onshore equities have already risen more than 20% this year thanks to the rapid recovery of the economy from coronavirus. Another bumper year is upon us, investment banks say.

“China will provide one of the strongest and fastest macro shots in 2021 among the major economies globally,” Goldman Sachs said in its China Outlook report, forecasting a 20% rebound in Chinese corporate profits and maintaining an overweight in China. Chinese stocks.

Morgan Stanley also remains overweight in China, expecting “solid” earnings growth in a context of strong, broad-based global recovery and a potentially more predictable trading environment once Joe Biden replaces Donald Trump in the White House.

China’s CSI300 benchmark index is expected to rise to 5,570 points at the end of 2021 in a baseline scenario, Morgan Stanley predicts, about 12% higher from the end-November level of 4960.25. Goldman expects a 13% rise in the index, while UBS expects a rise of approximately 10%.

Chinese regulators aggressively courted foreign investors with accelerated moves to open up China’s capital markets.

According to Citic Securities, global fund giants including BlackRock, JPMorgan and Vanguard have already increased their exposure to Chinese equities this year, and overseas inflows are likely to accelerate further.

“The international appetite for access to China’s financial markets is at an all-time high,” said Justin Chan, head of Greater China, Global Markets, HSBC.

“A constant stream of developments, from the inclusion of the index in the Stock and Bond Connect schemes is opening this market like never before and will make investors hungry from around the world they are piling up. “

In a survey published last week by HSBC of nearly 1,000 major global institutional investors and large corporations, 62% of them said they want to increase their portfolios in China by an average of 25% over the next 12 months. Among equity investors, 71% are looking to increase exposure to China.

Despite a wave of inflows – foreign holdings in Chinese onshore equities have more than doubled in the past two years to exceed $ 400 billion – China remains under-represented in most global investment portfolios, according to Willis Towers Watson.

Global advisory suggests that investors should now view Chinese equities as a stand-alone allocation, rather than as part of global or emerging market strategies, so that they can enjoy the full benefits of diversification and excess returns. offered by the market.

The Chinese stock market will not only benefit from this from inflows from abroad, but also from according to UBS, domestic asset rotations from shadow banking products and properties.

“One of the main themes for 2021-22, in our view, is the likely increase in Chinese household assets in onshore equities,” said Wendy Liu, Head of Chinese Strategy, UBS Global.

From an industry perspective, Morgan Stanley has identified several industries that will benefit from China’s focus on innovation, technological localization and consumption is increasing. They include high-end manufacturing, healthcare, biotechnology, defense and aerospace.

But Andrew Gillan, head of Asia ex-Japan equities at Janus Henderson Investors in Singapore, worries that the upward momentum in Chinese equities may lose strength.

“We like some of the A shares, but they are generally quite expensive.”

($ 1 = 6.5828 Chinese renminbi yuan)

Reportage by Samuel Shen and Andrew Galbraith; Additional reporting by Kane Wu in Hong Kong and Tom Westbrook in Singapore; Editing by Vidya Ranganathan and Simon Cameron-Moore