As one of the few economies still adopting a zero-Covid policy, the Chinese economy still faces challenges.
However, with the MSCI China Index down almost 50% from its peak last year, domestic equity valuations appeared potentially attractive to investors.
That is why T Rowe Price told a media briefing – which FSA attended – that it favours some reopening sectors in the country.
“Although we are shocked by the lingering Covid in China, we think that eventually it is going to go away,” said Ernest Yeung, portfolio manager of the T Rowe Price Emerging Markets Discovery Equity Strategy.
“Stocks that are exposed to ‘going out’ activities, China reopening, are on our radar.”
He believes there is little downside to investing in those names, so investors should allocate capital to those reopening stocks with healthy balance sheets, and then wait.
“When China eventually decides to reopen, I think we are going to have very good risk reward,” he added.
New potential re-emerges
Another major threat to the Chinese market is the strict regulations imposed, including the treatment of the country’s domestic technology platform companies and a tough stance on foreign depository receipt listings.
Yet Yeung is optimistic that policy makers are reversing some of the strict regulations imposed.
“In China, regulations have a tendency to mean-revert. Policy makers need to balance both sides of the equation,” he said.
“Given the current headwinds with the demographic, Covid-19 and geopolitical situation, it requires a healthy economy to achieve the policy objectives.”
He believes the restrictions should continue to ease in the run up to the Chinese Communist Party’s 20th Party Congress, which is to be held later in the year.
Yet, China’s regulation cycle was not the only driver of market performance, but rather is influenced by both global and local factors, said Yeung.
“In a world where many central banks are withdrawing liquidity to fight inflation, and governments in many developed countries are running deep fiscal deficits, China at least has scope to focus policy on supporting growth,” he explained.
