Raymond Chan, Allianz Global Investors
Hong Kong and China were the two worst performing equity markets last year, posting returns of -14.55% and -22.74% respectively. Sentiment in China was hit by regulatory crackdowns, signs of slowing economic activity and the threat of default at a major property developer, according to Allianz Global Investors.
But going into 2022, the asset manager believes valuations will stabilise or start to recover as government policy pivots to more pro-growth bias.
“We see the situation in 2021 very similar to that in 2018, when there was the shadow banking problem. The government used very strong economic momentum to tackle structural issues such as high leverage,” Raymond Chan, CIO equity Asia Pacific and portfolio manager at AllianzGI, told a media briefing this week.
“But now, a year later, the government should start to stimulate the market and impose less regulation on the property and internet sector, and we expect to see better performance in those sectors.”
In order for the market to perform, Chan believes the credit impulse index should start to pick up to provide liquidity.
“China equities are sensitive to domestic credit and liquidity conditions. The index is currently at the bottom, and I believe the index will start to pick up starting in the second quarter as Beijing cuts interest rates and increases fiscal spending,” he said.
Despite all the challenges last year, AllianzGI had seen continuous foreign inflow investing in China A shares through the stock connect programme, and strongly believes that this trend will continue in 2022.
Shifting from a focus on China large cap companies, AllianzGI is eying second tier names, which are likely to deliver strong earnings growth.
Five themes
The asset manager identified five themes where it sees sustained growth potential, namely: self-sufficiency, industrial upgrade, healthy lifestyle, renewable energy, and financial market reform.
Beijing has set national policy targets to be self-sufficient in the 5G, semiconductors and renewables sector. China is also striving to improve the quality of its manufacturing by enhancing the use of robotics. AllianzGI believes this shows Chinese manufacturers are increasingly able to win market share from their foreign competitors.
The healthcare sector is also likely to outperform, as there is a trend of increasing affluence and changing lifestyles driving sustained demand for healthier consumer products and healthcare services in China, Chan noted.
Meanwhile, solar power and electric vehicle companies are expected to outperform in the long term to meets China’s carbon neutrality goals. But, Chan warned that valuations for these sectors are quite expensive.
Lastly, financial services companies will also benefit from the ongoing liberalisation of China’s capital markets and improved market infrastructure, the investment manager believes.
