Morgan Stanley upgrades China stocks as global investors cheer post-COVID reopening hopes

Global traders are feeling increasingly optimistic about China, as they bet that the country will gradually lift COVID restrictions following widespread protests.

Many cities across China eased COVID-19 restrictions over the weekend. Starting Monday, Shanghai residents will no longer require COVID-negative test results to enter outdoor venues including parks and scenic spots.

Investment bank Morgan Stanley has upgraded its outlook on Chinese stock futures for the first time in nearly two years.

Its analysts said in a research note on Monday: “Multiple positive developments coupled with a clear path towards reopening warrant an upgrade and increase in the index target. for China”. They raised China’s shares to “overweight” from “balanced,” a position they have held since January 2021.

“We are in the early stages of a multi-quarter recovery in earnings and valuation adjustments,” they said.

Bank recommends that investors increase their investment allocation in overseas Chinese stocks. The MSCI China, an index that tracks major Chinese stocks for global investors, will hit 70 by the end of 2023, according to Morgan Stanley. That would be a 14% increase from current levels.

It also raised the target for Hong Kong’s benchmark Hang Seng Index to 21,200 by the end of next year. That’s a 10% increase from its current level.

The offshore yuan, a key gauge of how international investors think of China, rallied sharply against the US dollar on Monday. It rallied more than 1% to trade at 6,947 per dollar, surpassing the critical level of 7 per dollar for the first time in more than two months.

In the domestic market, the yuan, also known as the renminbi, rallied even stronger, last trading 1.4% higher at 6,957 per dollar.

The Hang Seng rose more than 4% on Monday, after posting a 27% gain in November, its best monthly performance since 1998. Mainland China’s Shanghai Composite Index rose 1.7%, after when it rose 9% last month.

Opening earlier?

Aside from Shanghai, the nearby city of Hangzhou no longer requires people to scan QR codes or provide COVID test results when taking public transport and entering public places, except for some designated locations. are at high risk, such as nursing homes and daycares.

The major cities of Beijing, Tianjin, Shenzhen, Wuhan and Zhengzhou have also eliminated the requirement to test negative to take public transport. In the southwestern city of Chongqing, the government has asked residents not to get tested for COVID “unless necessary”.

However, many restrictions still apply. In Beijing, public places like malls and office buildings still require COVID test results, even with the sudden removal of testing kiosks in the capital and other cities. , has caused long queues at the remaining testing sites.

Goldman Sachs, whose base scenario is that China will begin to reopen in April, said on Monday that the probability of an earlier exit had increased.

Chinese consumer shares also rose on Monday. The big hot pot restaurants Haidilao and Xiabuxiabu increased by 6% and 7%, respectively. Bubble milk tea chain Nayuki Holdings increased by 8%.

In commodity markets, oil prices continued to rise after posting their first weekly gain in four weeks last week. US crude and Brent were both up 0.7% in Asian trade.

Copper and iron ore prices were steady higher last week. The gains were driven by hopes that the recently announced easing of restrictions and asset support measures will boost demand from the world’s top commodity buyers, according to ANZ analysts. gender.

Cautiously urges

However, analysts also warn that China may be far from ending its no-COVID-19 policy entirely.

“We warn that the road to reopening could be slow, difficult and bumpy,” said Nomura analysts. “A large wave of COVID infections in the next few months could disrupt production and supply chains to some extent.”

On Monday, a private business survey showed China’s services sector contracted for the third consecutive month. Caixin/S&P Global Services PMI, a closely watched business survey, fell to 46.7 in November from 48.4 in October, marking a six-month low.

On the same day, Jefferies analysts said that the Chinese economy has lost more momentum, with some stats deteriorating.

They said: “As we said before, the economy is so poor, ‘they’re going to need to throw everything at the economy right now’.

Still, the prospect of reopening, according to economists, is enough to lift growth hopes.


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