(Bloomberg) — It wasn’t long ago that investors blamed China’s performance for the poor showing of Asian stocks versus global peers. Now a potential rebound in the nation’s equities is boosting optimism for the whole region to do better in 2022.
While imminent rate hikes from the Federal Reserve hammer shares around the world, a shift to monetary support by the People’s Bank of China is seen boosting markets in Hong Kong and on the mainland. Jefferies Financial Group Inc. and Deutsche Bank AG have just joined Goldman Sachs Group Inc. and HSBC Holdings Plc in turning bullish on China equities.
“Rates are being lowered in China and earnings growth in Asia looks to be on a reasonable footing,” said Herald van der Linde, Asia-Pacific head of equity strategy at HSBC. “This sets Asia up for good performance from hereon. We see more and more funds looking at Chinese equities.”
The Hang Seng China Enterprises Index and the Hang Seng Index have already climbed about 4% each this year, leading gains in Asia. That’s even as concerns about Beijing’s crackdown on private enterprise remain and China’s property sector struggles with defaults. They were the world’s worst performers in 2021, with the HSCEI gauge losing almost a fourth of its value.
Investors are pinning hopes that gains in China and Hong Kong stocks — which make up a quarter of the MSCI Asia Pacific Index — will help the regional gauge bounce back. It trailed the MSCI AC World Index by 20 percentage points last year but has fallen less than equity benchmarks for the U.S. and Europe so far in 2022 amid a global selloff.
“The emphasis should switch from U.S./Europe to Asia/China,” said Tai Hui, chief Asia market strategist at JPMorgan Asset Management.
“Valuation is one consideration in favor of Asia/China, while the other is that Asian domestic demand and the services sector have yet to fully recover from the pandemic, and we could see a more favorable environment for them to re-open later this year, allowing for more upside potential in corporate earnings,” he said.
Here is what some other market watchers are saying:
- “The China market and most of the Asian equity markets are trading at cheaper valuations,” said William Yuen, investment director at Invesco Hong Kong Ltd. “China and Hong Kong are a key part of the Asian benchmark for MSCI, so when China is underperforming, it drags the whole index down. This year I think a reversal is happening because I believe they will not continue to tighten the policies, and that’s a good start.”
- “I would start to take a hard look at quality and oversold emerging markets – and that could point back to North Asia and China at some point after clearer Fed guidance,” said Wai Ho Leong, a strategist at Modular Asset Management.
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