By Nick Hedley
Amid a bruising sell-off of Chinese assets, investment
analysts at Bank of Singapore say pessimism has reached “excessive” levels and
there are opportunities to capitalize on low valuations.
In the wake of the Chinese Communist Party’s meeting – where
president Xi Jinping consolidated power by appointing allies to key positions –
stocks continued their downward decline.
Investors are concerned that the congress signalled
continued geopolitical tensions, a possible decline in free market policies, a
lack of support for the ailing property sector, and China’s ongoing commitment
to its growth-sapping “zero-COVID policy,” says Eli Lee, head of investment strategy
at Bank of Singapore, the private banking arm of OCBC.
“We believe that investors should be cognizant of these
risks, which deserve to be closely monitored, but on balance we see the
knee-jerk market capitulation this week reflecting excessive pessimism,” Lee
said in a research note.
Having a “highly unified” group of policymakers at the helm
could lead to more effective policy execution and coordination, and Xi’s allies
have “largely pro-growth” track records.
Lee believes the Chinese Communist Party’s claim that its
clampdown on internet technology companies was nearly complete is “credible,” and
the ruling party will prioritize growth.
“Given the various challenges in the Chinese economic
outlook – including rising youth unemployment rates, which is highly
undesirable to Chinese policymakers – we expect policymakers to gradually
evolve their absolute zero-COVID stance into a dynamic policy trending towards
re-opening in 2023.”
Bank of Singapore remains optimistic about equities in Hong
Kong and China “given the risk-reward at these price levels.”
In those markets, the private bank expects investment themes
aligned with policy priorities to outperform – including consumption,
renewables, electric vehicles, and industrial automation.
“We are selective in the technology space amid rising U.S.-China
tensions, which is likely to negatively impact names in the semiconductor
sector, and likely AI and quantum computing areas ahead,” Lee said.