Investors load up on Chinese market bets

Economic rebound, prospect of thaw in US ties whet global players' appetite

A strong rebound in China's economy combined with hope for improved relations with the United States is spurring renewed interest among global investors for stocks trading on the Chinese mainland.

The investors are betting that Chinese stocks will extend their bull run and that corporate earnings on the Chinese mainland next year will be boosted by a global economic recovery and a more predictable relationship between China and the United States.

Shares on the benchmark Shanghai Stock Exchange have climbed 19.6 percent over the past year, boosted by the economy's early recovery from the coronavirus pandemic.

In its China outlook report, Goldman Sachs said:"China will deliver one of the strongest and fastest macro recoveries in 2021 among major economies globally."

The New York-based investment bank forecasts a rebound in Chinese corporate profits and recommends staying overweight on Chinese equities. The investment term refers to a brokerage recommendation to buy more shares.

Morgan Stanley also remains overweight China, forecasting solid earnings growth amid the backdrop of a strong, broad-based global recovery and a potentially more predictable trade environment.

"Investors may perceive the (President-elect Joe) Biden administration as a better outcome to US-China tensions or relations, at least from the trade and tariff standpoint," Kinger Lau, Goldman's chief China equity strategist, told the South China Morning Post.

Main drivers

Xing Ziqiang, chief economist with Morgan Stanley China, predicts that China's GDP growth will be nearly 9 percent next year, and the main drivers will be consumption and investment in the manufacturing and export sectors.

Morgan Stanley identified several industries that will benefit from China's focus on innovation, technology localization and consumption upgrades. They include high-end manufacturing, healthcare, biotech, defense and aerospace.

China's factory sector activity grew at its fastest pace in a decade in November, according to a business survey released on Tuesday.

The Caixin China General Manufacturing Purchasing Managers' Index rose to 54.9 last month, compared with 53.6 in October, said the report by media Caixin. A reading above 50 indicates economic expan-sion, below 50 indicates contraction.

"Manufacturing continued to recover and the economy increasingly returned to normality as fallout from the domestic COVID-19 epidemic faded," wrote Wang Zhe, senior economist at Caixin Insight Group.

Qin Peijing, an analyst at Citic Securities, told the South China Morning Post: "China's recovery is secure, and good expectations about the economies overseas will strengthen on the progress on the vaccines."

China's benchmark CSI 300 Index is expected to rise around 12 percent in 2021, Morgan Stanley predicts. Goldman forecasts a 13 percent gain in the index, while UBS expects an increase of about 10 percent.

Chinese regulators have been courting foreign investors with accelerated moves to open up China's capital markets.

Fund giants including BlackRock, JPMorgan and Vanguard have boosted their exposure to Chinese equities this year, according to Citic Securities.

"International appetite for access to Chinese financial markets is at an all-time high," said Justin Chan, head of Greater China, Global Markets, at HSBC.

Paul Colwell, head of the advisory portfolio group for Asia at insurance brokerage Willis Towers Watson, told CNBC on Monday: "For investors ...they need to have more of their investment portfolios allocated into China."

Agencies contributed to this story.