Institutional Investors Becoming Bullish on Chinese Equities as Shanghai Lockdowns Ease

Leading financial institutions have become increasingly bullish on Chinese equities, as the easing of lockdown measures in Shanghai gives greater breathing room to the Middle Kingdom’s economy.  

Vincent Mortier, chief investment officer at European asset manager Amundi SA, said to Bloomberg that a recovery in Chinese stocks is inevitable after a heavy sell off in the first quarter, as well as the dour sentiment created by the reimposition of lockdowns in the financial hub of Shanghai.  

“It’s more a question of when will it happen, not if it will happen,” said Mortier.  

“To be underweight Chinese equities today is risky…it’s better to be overweight because medium-term, we think there is value.” 

Amundi is Europe’s largest asset manager and oversees more than USD$2 trillion in global assets. Its flagship China equity fund has $578 million in assets under management, and is down 22% so far in 2022 following the heavy sell off in Chinese stocks in the first quarter.  

Mortier holds a favourable view of China’s consumer discretionary, industrial and healthcare sectors, but remains wary of the country’s tech companies due to the potential impacts of regulatory pressure. 

The remarks from Amundi’s chief investment officer arrive just after investment banking giant JPMorgan Chase announced a slew of upgrades to ratings for the key Chinese tech stocks. 

In mid-May JPMorgan analysts led by Alex Yao changed their tune abruptly on Chinese internet companies that they had deemed “uninvestable” just two months previously.  

JPMorgan upgraded the ratings of seven companies to “overweight”, after categorising them as underweight as recently as March.  

The “overweight” classification is viewed as a recommendation from analysts that clients increase their holdings of a given stock above the relevant benchmark index, and is akin to a “buy” rating.  

Companies that JPMorgan upgraded included Alibaba, Dingdong, Meituan, NetEase, iQIYI and Pinduoduo.  

In sharp contrast to Mortier, Yao is upbeat on Chinese tech stocks due to recent announcements from regulators that he believes provide positive clarification for the sector.  

“Significant uncertainties should begin to abate on the back of recent regulatory announcements,” said Yao and analysts in a note.  

Not all the major players are optimistic about China’s growth prospects however. Investment manager BlackRock downgraded its view on Chinese stocks from “modest overweight” to “neutral” in early May.  

BlackRock’s analysts pointed specifically to the reimposition of Covid lockdown measures in major economic centres such as as Shanghai as the reason for the downgrade.  

“Lockdowns are set to curtail economic activity,” wrote BlackRock Institute strategists Jean Boivin and Wei Li in a note.  

The two analysts pointed in particular to the “rapidly worsening outlook for China’s growth on widespread lockdowns to curtail a Covid spike.” 

Long-term pessimism may not be warranted though, as Shanghai has recently taken steps to ease restrictions and restore the health of the shellshocked local economy, while the Chinese government may also be adjusting its broader strategy for dealing with the pandemic.  

On Sunday 29 March the Shanghai government unveiled an ambitious action plan for driving the recovery of the municipal economy, including measures to support foreign investment, spur consumption, and facilitate the resumption of work and business by local companies.  

Starting from 1 June the Shanghai government will also cancel the review and approval system for companies in the city seeking to resume operation.  

Easing of lockdown restrictions in Shanghai helped to boost the offshore yuan and the benchmark CSI 300 Index around 0.7% in Monday trading, with consumer companies leading gains in Chinese stocks.