It’s time to buy back into Chinese equities, Societe Generale said in a note on Tuesday.
In its mid-June global market review, the bank had highlighted the risk of a correction in China equities and recommended investors reduce weightings, diversify into good-quality local bonds and favour H-shares over A-shares, according to Share Cast.
Since then, the market has corrected sharply and “beyond all expectations”, it added.
“Our understanding of what happened is simple: there was a liquidity crunch on the one hand, and a late reaction by policy makers on the other.”
Ahead of the inclusion of A-shares in global benchmarks, and as structural reforms continue apace, SocGen recommended strong exposure to China equities. Its preference is for liquidity at this stage, skewed to the FTSE China A-50 index within A-shares or H-shares that are trading at a strong discount.
A-shares are stocks in mainland China-based companies that trade on Chinese stock exchanges such as the Shanghai Stock Exchange and the Shenzhen Stock Exchange. H shares refer to shares of companies incorporated in mainland China that are traded on the Hong Kong Stock Exchange.
The bank said Chinese equities are supported by a long run gross domestic product growth rate of around six per cent, low inflation and the authorities’ significant room for monetary policy loosening.
“Monetary policy de-synchronisation will be critical when US and UK central banks are tightening; Chinese equities offer strong de-correlation assets, which implies better risk control for balanced funds,” said SocGen.
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Source : Punch