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Amundi is bullish on Chinese equities

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The name of the game for investors in 2022 is to diversify their equity risk in an environment of higher level of interest rates and inflation and greater volatility, Pascal Blanque, chief investment officer at Amundi Asset Management, told a virtual press conference this week.

“This basically implies two challenges. One is to protect the portfolio against the likely bursting of the so-called tech bubble. It’s not an if, it’s a when for me, when real interest rates rise,” Blanque said.

The second challenge is the reshaping of the equity portfolio through an “inflation factor lens”, he said.

“Down the road, we will see who is swimming naked on a pricing power basis. I am strongly convinced it is important to focus in areas where positive real returns can be extracted.”

Blanque said that going forward, he likes Chinese assets, which should be at the core of portfolios.

Investors must look at China as the Germany of the 1970s and look at the renminbi as the deutsche mark of the 1970s. “This was a decade of lasting positive real returns, coupled with the sound macro policies and a strong currency policy from the authorities,” he said.

Although earnings momentum in China is expected to deteriorate further amid the economic slowdown, due to tightening liquidity in the property sector, weak demand and supply constraints, the regulatory crackdown is peaking and credit growth is expected to bottom-out soon, while valuations are supportive, according to Blanque.

Central bank flexibility

Monica Defend, global head of research at Amundi, believes that the Chinese authorities will introduce more accommodative monetary policies early next year.

“So far, we have seen the central bank in China trying to manage – successfully, we say — the crisis in the real estate sector through some liquidity injections,” Defend said.

While the Federal Reserve, the European Central Bank and the Bank of Japan have expanded their balance sheets at unprecedented levels, China has been more cautious in embracing unconventional monetary policy, she noted.

The Peoples Bank of China’s balance sheet actually shrank during the first four months of 2021 and rebounded only mildly in May and June. The interest rate picture confirms the different approach of developed markets central banks and China’s.

“[Therefore] some accommodation is possible to avert excessive liquidity tightening amid housing market issues,” said Defend.

Amundi is also positive on Hong Kong next year, and suggests investor focus on reopening themes. It favours insurance and travel related consumer names.

The firm also likes India equities, which should be buoyed by digital transformation, the “made in India” drive, the financialisation of savings, and the increasing weight of Indian stocks in global indices as initial public offerings gather pace. However, in the short-term, these attractions are “offset by high valuations in cyclical and new economy sectors”, she said.

Part of the Mark Allen Group.