Global markets have recently benefited from positive news out of China, which is lifting coronavirus lockdown restrictions in Shanghai and reportedly easing regulatory crackdowns on its tech sector, leading some experts to up their exposure to Chinese stocks as they bet on an economic rebound.
With infections trending steadily down, China’s rollback of its two-month long Covid-19 lockdown in Shanghai is providing a boost to global markets.
While China’s lockdowns had a “dramatic negative impact” on economic activity, analysts at Goldman Sachs expect a “strong rebound” in June and July, “consistent with the experience after other major lockdowns around the world.”
The country’s reopening is expected to ease global supply chain delays (amid reports that Shanghai’s port is almost back to full operating capacity), but experts warn that it will still be some time before economic activity bounces back fully.
Valuations in the Chinese stock market have now fallen to more attractive levels and there are “some signs” that investors are upping exposure to China again with plenty of long-term opportunities to be had, says Brendan Ahern, chief investment officer at China-focused ETF provider KraneShares.
Shares of Chinese e-commerce giants such as Alibaba, JD.com, Tencent and Pinduoduo have all seen improved performance (up 21%, 20%, 13% and 66%, respectively in the last month), he points out, and should be primed to rebound further as they benefit from resilient consumer spending.
Ahern also highlights what he calls the “clean tech ecosystem”—wind, solar and electric-vehicle companies—which look primed for long-term growth despite seeing somewhat of a growth stock correction this year; he has his eye on the likes of EV battery-manufacturer CATL and automaker BYD.
Despite the positive reopening news, the Chinese economy’s longer-term issues remain unchanged, analysts at Goldman Sachs say in a recent note. Coronavirus will “remain a threat until policymakers feel comfortable moving away from the covid zero policy,” which still looks to be a ways off, they argue. What’s more, China remains an “export-oriented economy, and that model is under pressure as globalization slows or reverses,” according to Goldman. The analysts also highlight the ongoing troubles in China’s real estate sector, where property investment is in “the early stages of a multi-decade decline as urban population growth slows and speculative activity diminishes.”
What To Watch For:
After the Wall Street Journal reported earlier this week that Chinese regulators will conclude a years-long probe into ride-sharing giant Didi and lift a ban on new users, some investors have grown hopeful that China’s regulatory crackdown on its tech sector could be softening. Based on government rhetoric suggesting that implementation of regulation is easing, one could argue that “the worst is over,” says Ahern. He is “far more worried” about U.S. regulation of Chinese tech companies, adding that China will have to place a lot of emphasis on developing its own technology as well as diversifying and revitalizing its tech sector. “If you’re worried about the U.S. providing less access to U.S. technologies, Chinese domestic companies could be a big beneficiary,” according to Ahern.