Global investors keep big bet on A shares

Low valuations, GDP goal, policy easing, resilient market prove major positives

Despite the global market turning jittery amid multiple uncertainties like the rising commodity prices, escalating geopolitical tensions and US Federal Reserve's more rounds of interest rate hikes, international investors still hold a positive outlook on renminbi assets and retain good exposure to the Chinese stock market.

The overall low market valuation is one of the many reasons that Goldman Sachs maintains an "overweight" call on Chinese stocks, according to the investment bank's latest report. The price-to-earnings ratio of the MSCI China Index should be 12.5 times according to their calculation, while the current reading comes in at 9.9 times, the lowest in six years.

China's well-positioned growth targets, relatively relaxed policies and investors' low position are other arguments that are keeping Goldman Sachs' confidence in the Chinese stock market.

Its advice to investors is to look at sectors that will benefit from supportive government policies, including "new infrastructure" and common prosperity moves. Companies that have announced share buybacks or are significantly undervalued can also offer opportunities for high returns.

Similarly, JPMorgan also holds "overweight" on the A-share market for this year, saying investors should give more attention to stocks of companies specializing in information technology, materials, energy and discretionary consumption with clear growth forecast.

At the end of January, only 17 percent of the 58 global leading emerging market funds tracked by JPMorgan were underweight on China; their ratio was between 37 percent and 45 percent in the fourth quarter of 2021. It means that these funds are gradually increasing their position in Chinese assets, said Wendy Liu, JPMorgan's chief China equity strategist.

"China will be the best performing market globally this year. This conclusion of ours is reflected in our 2022 global asset allocation advice and emerging market forecast released at the end of 2021," she said.

Citi's global investment committee has also increased its allocation to Chinese assets for this year, with its optimism about the Chinese stock market remaining unchanged despite previous fluctuations.

The annual GDP growth target of around 5.5 percent has shown the Chinese government's resolve to stabilize growth. In this sense, China may continue to adopt proactive fiscal policies and retain the relatively relaxed monetary policies. The market's low valuation, with some industries' valuations approaching historic lows, will provide more room for growth, said Citi analysts.

Meanwhile, the difference between Chinese and US interest rates, the long-term investment opportunities in China, and the overseas capital's need for global asset allocations, will all be translated into continued overseas capital inflows into the Chinese market, they said.

Louis Luo, investment director for multi-asset solutions at Aberdeen Standard Investments, said he expects more economy-stabilizing policies in China this year, including increased expenditure on infrastructure, investment in manufacturing and tax reductions.

"We are optimistic about A shares' performance this year, given their positive profitability forecast. With low correlation to global investment portfolios, Chinese assets will play a crucial role in global investors' diversified deployment in 2022," he said.

Following positive messages from China's top financial regulators on Wednesday, Yi Huiman, chairman of the China Securities Regulatory Commission, said on Thursday that the capital market's internal stabilizing mechanism should be further completed.

Efforts should be advanced to address key issues regarding expectations, market ecosystem and overall environment in order to ensure the stable operation of the capital market, Yi said.

On Friday, China's top three stock indexes reported gains for the third consecutive day. The benchmark Shanghai Composite Index climbed 1.12 percent; the Shenzhen Component Index rose by 0.31 percent; and technology-heavy ChiNext in Shenzhen crawled up by 0.11 percent.