Wang Hanfeng, CICC
By analysing signals sent out from the Beijing’s Central Economic Work Conference held in December 2021, CICC believes that government policies will be more accommodative this year, which is “good news for Chinese equities”.
“We all know that the A-share market as well as Hong Kong’s stock market didn’t perform well in 2021, [but companies which have listed] A-shares and H-shares were making profits last year, which means that several of their market valuations are at historic lows,” Wang Hanfeng, chief strategist at CICC told a media briefing.
“More accommodative central banks policies, low stock valuations combined and strong inbound capital flows, suggests that there is really no reason to be pessimistic about Chinese equities in 2022,” he said.
Structural trends
Wang sees three key structural trends in 2022. First, industrial upgrading, which overseas investors have already noticed. “They use to invest mainly in consumer-related companies, but they are increasing their exposure to high- quality manufacturers, including auto parts, medical equipment and new energy automobile industry chain in China,” said Wang.
Second, consumption upgrading, despite weak consumer spending in China since the outbreak of Covid-19 [in Wuhan in early 2020]. But Wang pointed out that the GDP per capita in China is about $10,000 now, which should support strong consumer demand for better quality goods and services in the future.
Finally, asset allocation by China investors has reached a “turning point”. After reaching $10,000 GDP per capita, their investment in “real assets”, such as property, has limited potential for growth.
In contrast, “the demand for financial assets is growing rapidly,” said Wang, highlighting the rapid growth of the mutual fund industry in China.
“In the past, Chinese investors preferred low- to medium-risk financial assets, but in the future, they will have more appetite for medium- to high-risk financial assets,” he said, adding that “this trend will present opportunities for asset management and wealth management companies”.
Macro policies
Wang said that since the central government is focusing on “stabilising growth” at the beginning of the year, investors should pay attention to the possibility of a rebound for the financial sector as well as the property market.
In the second half of 2022, when – so CICC expects — economic growth is steady, investors should focus on advanced manufacturers as well as leading consumption companies, he added.
However, there are major risks that investors should pay attention to, warned Wang, including a worsening of the debt problem [among property firms and local governments].
In addition, inflation in foreign economies could prompt interest rises which might dampen global stock prices. Meanwhile, geopolitical tensions are likely to persist and create anxiety among investors.
