In a recent webinar to Australian clients ‘Triple policy pivots and more:
Turning point for Chinese equities’ and on our China Invest podcast, Thomas Kwan, CEO of Harvest Global Investments, has pointed out the exceptionally low valuation for the China A share market today, and the strong likelihood of a re-rating of the China market in 2023 to reflect improving economic conditions and sentiment.
He pointed out the following positive factors which are already having an impact on shareholder returns for the next 12 months:
- The gradual removal of Covid restrictions and lockdowns
- China’s new rescue plan for the property sector
- A more moderate and less hawkish US monetary policy in 2023
- Improving geo-politics, especially the US-China relationship following the recent meeting in Bali between President Xi and President Biden
- Pent up consumer demand following months of lockdowns and a significant rise in the personal savings rate (some reports indicate that personal savings in China has increased by RMB10 trillion in the last 3 years)
- Expected Government stimulus to restore the economy to pre-pandemic levels, with an expected GDP growth rate of over 5% in 2023.
- Recent reports to clients from large institutional investment firms (eg Morgan Stanley and UBS) which suggests they are turning bullish on the China market. As an example, see Morgan Stanley Upgrades China Stocks on Reopening Bullishness
As you can see from the chart above, even a modest re-rating of the China market (a 12x FWD P/E +15% EPS growth) in 2023 is expected to deliver a return to investors of 32% or more, and this is regarded as a relatively conservative view.
This is not advice and you should do your own research, but you heard it here first: is this the turning point for Chinese equities?
