The recent stimulus measures announced by China have seen most analysts sit up and take notice.
Within the Asian region, brokerages have started tweaking their investment strategies, tactically favouring China over India.
They believe Indian equity markets are expensive in comparison to China, which offers a better risk-reward ratio and return potential in the short-to-medium term.
According to a recent survey by BofA Securities, Beijing’s stimulus announcement to revive the sluggish economy caused global investors to raise their outlook on Chinese growth to the most optimistic level since April 2023.
Seventeen per cent of global investors surveyed by BofA between 4 and October 10, 2024, said “long gold” was the most crowded trade, followed by “long China equities” at 14 per cent.
Elara Securities’ fund level analysis in October showed a total shortage of $32 billion in China (around 3.5 per cent of assets under management (AUM) within the top 450 global emerging markets (GEMs) funds.
At 20 per cent, India’s weight could lead to $6 billion selling in Indian equities, Elara said.
Here’s how leading brokerages have interpreted the developments in China and are positioned across Asian/emerging markets.
Macquarie
A lot of GEM fund managers who were underweight on China have significantly upped their weighting in the past few weeks.
While it is tough to take a structurally positive long-term view of China, they don’t want to be swimming against the tide and believe, in the short term, there are more legs to this rally.
So, they have been trimming overweight positions in India and buying China of late.
Longer-term, the view on India was more constructive than China’s.
In the near term, there are growth concerns in India as reflected by slowing auto sales, tax collections, and credit growth.
It is quite possible that further announcements might propel China’s equities, even as structural issues fester.
But, this is mostly a trading, not an investment call, which still heavily favors India.
Jefferies
There is no doubt that the Chinese authorities have, for the first time since the incremental easing got underway, succeeded in raising expectations.
The recent massive move in China, with stocks going up in an almost indiscriminate fashion, is reminiscent of so many similar boom-bust rallies in the past.
Such moves are a nightmare for relative-return investors managing against the Asian and emerging market benchmarks, most particularly as some of them had decided of late that China has become ‘uninvestable’ and exited altogether.
Morgan Stanley
The commitment to “ample” fiscal deficit expansion by Chinese authorities should help stabilise market sentiment in the near term after the huge volatility we have observed since late September.
We do not expect fund flows/active fund positioning to retreat back to pre-September 2024 levels, as the signal of a policy pivot was clear despite a lack of details.
That said, with fewer than three months left in the year, further fiscal measures are likely to come only incrementally during 2025. Earnings visibility and quality should remain popular as Chinese investors try to pick the right spot with their existing allocations.
BofA Securities
Japan is the favorite market in the Asia Pacific (APAC), with Taiwan a distant second.
Sustained underperformance for Korea is seen with limited investor interest in the corporate value-up programme.
Notably, the improvement in sentiment on China has come at the expense of India as seen from the dissipation of the gap in allocations.
Elara Securities
Tactically from a short-term (3-6 months) perspective, China’s equities look attractive as the recent measures keep hope alive that policymakers are willing to act, and, as such, will help to create a floor to further moderation.
From a long-term perspective, we do not see the measures announced to date changing the track of the economy unless it is backed by an incremental fiscal stimulus that concretely addresses either consumer confidence or property market malaise.
The factors that can sustain the rally for longer are absent in our view as the domestic economy remains in a deep malaise.
China’s export-led growth model will likely face challenges as tariff hikes by the US, Canada, and the EU limit its export growth.
The recessionary German economy also adds to key risks for China’s economy.
