No holding back on Chinese stocks as hedge funds buy while BlackRock says market is unprepared for nasty surprises
- The CSI 300 Index fell in the first quarter in seven of the past 10 years, with 15 per cent in 2022 being the worst of the losses
- The bullish start to 2023 suggests global funds are undeterred by any potential short-term pain
The CSI 300 Index of industry leaders has risen 8 per cent this year, backed by a chorus of bullish calls from strategists at Wall Street banks. China’s zero-Covid pivot from late November has lifted many of yesteryear’s losers, while global funds are buying local equities at a record pace this month.
“Risk appetite is coming back as the policy fronts continue improving at home and abroad,” said Lu Bin, chief investment officer at HSBC Jintrust Fund Management in Shanghai. “Consumer demand and property market conditions are expected to improve and corporate earnings will probably bottom out.”
03:48
Busy Lunar New Year fair brings some relief to Beijing’s small business owners
Such optimism is built on expectations that China’s economic recovery will gather pace. Goldman Sachs raised its 2023 growth forecast to 5.5 per cent from 5.2 per cent, after reports showed activity in December was not as bearish as feared. The CSI 300 Index still has another 8 per cent upside this year, the US bank said in a report on January 20.
Hedge funds have added risk in China, Goldman said, based on its proprietary data. The net exposure in Chinese equities has recovered from a low of 7 per cent of the total book to about 13 per cent currently, it said in a report on January 20. That is approaching the 15 per cent peak seen in 2020.
Goldman is not alone in the bullish corner. Morgan Stanley, Bank of America and JPMorgan Chase have also viewed China reopening as a catalyst for a rally in 2023. Paris-based money manager Amundi sees China as a bright spot, with the US and Europe staring at recession amid inflation pressures.
Yet, the first three calendar months offer some reminders in terms of recent performances. The CSI 300 lost 15 per cent in that quarter last year, 3.1 per cent in 2021 and 10 per cent in 2020. While China’s opening underpins a positive long-term outlook, the market view is “too rosy”, BlackRock said.
