Morgan Stanley upgrades China stocks as global investors cheer on COVID reopening hopes
Morgan Stanley upgrades China stocks as global investors cheer on COVID reopening hopes
Global traders are increasingly feeling more bullish on China, as they bet the country will gradually unwind COVID restrictions following widespread protests.
Multiple cities across China loosened COVID-19 restrictions over the weekend. Starting Monday, Shanghai residents will no longer require a negative COVID test result to enter outdoor venues including parks and scenic attractions.
Investment bank Morgan Stanley has upgraded its view of the future performance of Chinese equities for the first time in nearly two years.
"Multiple positive developments alongside a clear path set towards reopening warrant an upgrade and index target increases for China," its analysts said in a research note on Monday. They raised China equities to "overweight" from "equal-weight," a position they had held since January 2021.
"We are at the beginning of a multi-quarter recovery in earnings revisions and valuations," they said.
The bankrecommended that investors increase their investment allocations to offshore Chinese equities. MSCI China, an index tracking major Chinese stocks available to global investors, will hit the 70 level by the end of 2023, according to Morgan Stanley. That would be a 14% increase from its current level.
It also raised its target for Hong Kong's benchmark Hang Seng Index to 21,200 by the end of next year. That's up 10% from its current level.
The offshore yuan, a key gauge of how international investors think about China, strengthened sharply against the U.S. dollar on Monday. It rose more than 1% to trade at 6.947 per dollar, breaking through the important level of 7 per dollar for the first time in more than two months.
In the domestic market, the yuan, also known as the renminbi, surged even more, last trading 1.4% higher at 6.957 per dollar.
The Hang Seng climbed more than 4% on Monday, after logging a 27% gain in November, its best monthly performance since 1998. Mainland China's benchmark Shanghai Composite was up 1.7%, following a 9% gain last month.
Earlier opening?
In addition to Shanghai, the nearby city of Hangzhou no longer requires people to scan QR codes or provide COVID test results when taking public transportation and entering public venues, except in some venues designated as high-risk, such as seniors homes and kindergartens.
The major cities of Beijing, Tianjin, Shenzhen, Wuhan, and Zhengzhou have also scrapped the need for a negative test to ride public transport. In the southwestern city of Chongqing, the government has asked citizens not to test for COVID "unless necessary."
Many restrictions remain in place, however. In Beijing, public venues such as malls and office buildings still require COVID test results, even as the abrupt removal of testing kiosks in the capital, and other cities, has caused long lines at remaining testing locations.
Goldman Sachs, which had a baseline scenario for China to start to reopen in April, said on Monday that the probability of an earlier exit had increased.
China's consumer stocks also advanced on Monday. Major hot pot restaurants Haidilao and Xiabuxiabu were up 6% and 7% respectively. Bubble tea chain Nayuki Holdings rallied by 8%.
In commodities markets, oil prices rose further after scoring their first weekly gain in four weeks last week. U.S. crude and Brent crude were both up 0.7% in Asian trade.
Copper and iron ore prices had settled higher last week. The gains were buoyed by hopes that the easing of restrictions and recently announced property support measures will boost demand from the world's top commodities buyer, according to ANZ analysts.
Caution urged
However, analysts also warned that China may still be a long way from ending its zero-COVID policy completely.
"We caution that the road to reopening may be gradual, painful and bumpy," said Nomura analysts. "A massive wave of COVID infections in the next few months may disrupt production and supply chains to some extent."
On Monday, a private business survey showed that China's services sector contracted for a third straight month. The Caixin/ S&P Global services PMI, a closely-watched business survey, slid to 46.7 in November from 48.4 in October, marking its lowest level in six months.
On the same day, Jefferies analysts said the Chinese economy hadlost further momentum, with a number of indicators deteriorating.
"As we said before, the economy is so poor, 'they will need to throw everything at the economy now,'" they said.
The prospect of reopening though, according to economists, should be enough to lift growth hopes.
Many Canadians have continued to see an increase in their rental rates in 2023. In an column on CTVNews.ca, personal finance contributor Christopher Liew explains how to calculate how much rent you can afford.
Canadians now believe they need $1.7 million in savings in order to retire, a 20 per cent increase from 2020, according to a new BMO survey. The eye-watering figure is the largest sum since BMO first started surveying Canadians about their retirement expectations 13 years ago.
With the spring break travel season approaching, those looking to flee the cold, wet Canadian snow for sunnier skies will likely be met with a hefty price tag for their getaway, with inflation and increased demand pushing costs up.
When selling a home, Canadians may be exempted from paying capital gains tax on a residential property -- if it's their principal residence. On CTVNews.ca, personal finance contributor Christopher Liew explains what's determined as a principal residence, and what properties are eligible for the exemption.
The Bank of Canada hiked its key interest rate by a quarter of a percentage point Wednesday, bringing it to 4.5 per cent. Here's a look at what the rate means, how analysts are interpreting it and what it could mean for consumers.
The federal government's latest TFSA contribution limit increase took effect as of January 1, 2023. Personal finance contributor Christopher Liew outlines how the government’s most recent TFSA contribution limit increase affects you and how to make the most of it.
Finding an affordable place to live in the territories, where housing has long been a challenge, is getting even harder, the Canada Mortgage and Housing Corporation suggested in a report released in December. In Yellowknife, the report said, the growing senior population, urbanization and strong labour market has pressured the housing supply.
Canada is suffering from a severe skills shortage in several key sectors, experts say, thanks to factors that include deficiencies in our education system as well as changing demographics. CTVNews.ca looks at some of the skills that will be most in-demand in 2023.
