Foreign firms optimistic on Chinese stock market next year

Foreign financial institutions have become more bullish about China's stock market performance in 2023 as the signs of the country's economic stabilization become increasingly noticeable amid stimulus measures and the accelerated optimization of epidemic control measures.

One week after Morgan Stanley upgraded its outlook for China stocks in 2023 from equal-weight to overweight, the New York-headquartered investment company added in a report that the Chinese stock market is likely to stand out among emerging economies and even overtake the rest of the world next year.

The swift actions taken by the Chinese government to optimize COVID control measures will continue to boost market sentiment, said Morgan Stanley.

Likewise, Credit Suisse now "overweights" China within its Asian portfolio. Erica Poon Werkun, the company's head of securities research for the Asia-Pacific, said that "China should outperform" other emerging markets, as the Chinese government is likely to introduce more "concrete and incremental" economic stimulus policies in 2023.

The supportive policies introduced over the past few months, including those for the property sector, are conducive to boosting market sentiment and foreign capital inflows, she added.

Wang Tao, head of Asia economics at UBS Investment Bank, said the renminbi will steadily appreciate in the second quarter of 2023. Economic growth in the United States is expected to slow next year while that in China accelerates. Such macroeconomic differences between the two economies may encourage global investors to switch to Chinese assets, she said.

Although UBS has a neutral outlook for the overall performance of China's A-share market in 2023, it still maintains that internet, pharmaceutical, medical device, consumption, transportation and materials companies will directly benefit from China's optimized epidemic control measures.

The National Health Commission said in a statement on Tuesday that the country will scrap the quarantine requirement for international arrivals starting on Jan 8, as it will downgrade management of COVID-19 cases from Class A to Class B. This is in accordance with the tone of the messages from the Central Economic Work Conference in mid-December.

With such optimization, the A-share consumption sector, especially healthcare companies, offers good investment prospects in the medium term given its current valuation, said Desmond Kuang, chief investment officer for HSBC Global Private Banking and Wealth in China.

While A-share companies' overall profitability will bottom out in the next six to 12 months as China's economic fundamentals further stabilize, companies specializing in green transformation, technological innovation and internet security may also offer more investment opportunities in 2023 as their businesses are in line with China's long-term development strategy, he said.

At a meeting on Nov 30, experts from Goldman Sachs provided an overweight rating for Chinese equities in 2023. They estimated that the annual return of the CSI 300 index, a benchmark of 300 A-share large caps, will be around 16 percent in 2023. Investors should increase their exposure to Chinese stocks next year, as these are expected to outperform the rest of the world, suggested Goldman Sachs analysts.

Although the benchmark Shanghai Composite Index shed 0.26 percent on Wednesday, northbound capital, the amount that foreign investors buy into A shares via the stock connect program linking the Shanghai, Shenzhen and Hong Kong bourses, reported a net inflow of 4 billion yuan ($574 million).