Thomas Poullaouec, T Rowe Price
China is expected to unveil more packages to support growth, Thomas Poullaouec, head of multi-asset solutions Apac at T Rowe Price, said in a report.
After a rocky 2021, investors were hopeful for a rebound in China amid signs of easier policy support and slowing regulatory reform. However, the year has started with continued signs of slowing growth, much of which has been attributed to strict zero-tolerance policies around Covid, he noted.
“Investor confidence is waning as equity markets have slumped nearly 8% to start the year and creditors are still waiting to find a bottom in prices for much of China’s real estate-related debt sector,” Poullaouec said.
In response, China policymakers have taken early steps to ease policy, including cutting lending rates, lowering reserve requirements, and flipping course on the property sector by freeing up home loans to stabilize prices, and more support is likely on the way.
“China is loosening as the developed world is tightening. And this could make China—and emerging markets more broadly—an interesting contrarian trade for 2022,” he said.
“In our multi-asset portfolio, we maintain overweight to Chinese equities as policy easing, subdued inflation, attractive valuation and improving earnings outlook provide positive uplifts,” Poullaouec added.
T Rowe Price’s view is echoed by Fidelity, which also expects China will maintain a loose an independent monetary policy this year, and that its equity and bond markets will remain appealing globally, with foreign holdings continuing to rise.
However, some other asset managers are less bullish. China is the least affected by any US rate hikes, because it has a larger domestic economy and differing business cycles, according to Winnie Chiu, senior equity advisor at Indosuez Wealth Management
“But until consumption and growth show clearer signs of recovery, we stay with our neutral view on China stocks,” she said.
Global picture
In general, equity markets are off to their worst start of the year since 2009 as they continue to price in the Federal Reserve’s hawkish interest rate pivot and the probability of over five rate hikes this year.
The drawdown in equities has been led by high growth-oriented companies, notably in the technology and discretionary sectors, many of which rose to high valuations last year having benefitted from changes in consumer behaviour related to Covid, according to T Rowe Price’s analysis.
With 10-year US Treasury yields already jumping over 40 basis points this year and mortgage rates following suit with a near 50 basis point jump, the impacts are flowing through to the real economy, Poullaouec said.
“While the Fed seems set on its aggressive path forward, the flattening yield curve seems more worried about its potential impacts on growth and is questioning if we’ll get the high five from [Federal Reserve chairman] Powell this year,” he concluded.
