China’s Stocks Had a Tumultuous Year. Analysts Size Up the Market’s Prospects for 2022.

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A digital sign showing stock market information in Hong Kong. China’s stock market underperformed in 2021, and some analysts don’t see a quick rebound.

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Isaac Lawrence / AFP via Getty Images

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Analysts are as confused about China’s 2022 market prospects as they were until the turbulent year of 2021.

This year has been unprecedented in many ways. For one, mainland China’s market performance was so poor that it became more isolated from other major markets in two decades.

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China’s large-cap CSI 300 index fell nearly 5% for the year. Hong Kong, home to many Chinese tech and other giants, saw its Hang Seng index dive nearly 15% over the same period. The MSCI China Index is down 37% percentage points compared to comparable major indices.

But in a crushing year for Chinese markets, some analysts were ready to buy the fall.

“China has gone on sale,” JPMorgan Asset & Wealth Management CEO Mary Callahan Erdos said at a conference call in October. Another JPMorgan analyst said in a note last month that the MSCI China Index would climb about 40% in 2022.

Since November, UBS Group, BlackRock, and HSBC Holdings have all extended their stances on Chinese stocks to overweight.

But a lot of downbeat forecasts and striking uncertainty emerged from several major institutions.

Goldman Sachs Group epitomizes this uncertainty, having previously said in a note last week that “we expect the central bank to cut RRR (we expect another cut in Q1 2022) and various lending facilities, on-budget.” Will inject more long-term liquidity through the fiscal year. Expenditure will be more supportive of growth than in 2021, and local governments to ease property policies at the local level.”

But it later added that “headwinds for growth remain, as property markets may continue to chill, a zero-Covid strategy could drag consumption amid recurring Covid waves, and the Winter Olympic Games early next year.” Beijing’s anti-pollution measures before may also weigh on industrial production.”

Other experts struck a similarly cautious approach to Chinese stocks at home and abroad.

Jackie Choy, director of the ETF, said, “While both domestic and non-domestic ‘China’ markets should be driven by essentially the same fundamental factors, differences in index composition and the listing locations of the constituents result in different exposures for investors.” Risk-reward profiles.” Research from Morningstar Asia said in a recent note.

“This is why investors should know what flavor of ‘China’ they want to acquire before investing,” he said.

However, external factors were on the minds of most analysts. Even the generally upbeat expert Bruce Pang was more cautious than usual due to storms last year.

Head of Macro Strategy Research at China Renaissance Securities said, “We expect Chinese equities to continue to hold strong in 2022, despite strong earnings growth, until regulatory pressure eases and Sino-US relations improve significantly.” Till then the sentiment will continue to run and drag.”

Their takeaway message: “Within Chinese equities, we prefer A-shares given their less near-term regulatory risk with a more balanced new/old-economy sector mix, more to drive domestic policy.” sensitivity, and less exposure to potential spillover risk from the US Fed.

Hao Hong, Managing Director of BOCOM International, Bank of Communication told baron’s, “I am far more cautious than the general consensus.”

His argument was also more global than concern for the continued pushback from Beijing by domestic firms. “Shanghai Composite will not rise above its peak at ~3700 in February 2021,” he said. “Reopening the West means slower demand for Chinese exports, lower current account balances and thus limited liquidity expansion.”

Some analysts also put most of their valuations on geopolitical developments.

“to expect [Chinese President] Heyman Capital Management’s chief investment officer, Kyle Bass, said Xi’s military and economic belligerence has intensified toward Taiwan and so it is even more impossible to exempt investments in China. baron’s,

“Given the 3% annualized return of the Shanghai Index over the past decade, investors may finally realize that they are taking on immeasurable risk in exchange for substandard returns,” he said.

Unlike other large investment banks, Morgan Stanley and Citigroup have avoided joining the bull club. The former didn’t upgrade its Downbeat view in November, and the latter said in a recent note that, “now isn’t the time to buy.”

Lu Fangzhou, a finance professor at the University of Hong Kong, told baron’s: “The regulation pressure of the tech sector is still huge. Since the tech sector is a large part of the Hong Kong index, I see a recession in the Hong Kong market in 2022.

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