Pictet, PineBridge Undeterred as China Stocks Erase 2023 Gains

·4 min read

(Bloomberg) -- Pictet Wealth Management, PineBridge Investments and BNP Paribas Asset Management are among a shrinking minority of global investors betting that patience will reward investors in China, even as this year’s gains in the nation’s stocks evaporate.

Most Read from Bloomberg

Despite poor economic data from industrial output to retail sales, entrenched superpower rivalry with the US and the retreat of long-term investors like Softbank Group Corp., the trio are holding to the view that it’s only a matter of time before the next leg up for Chinese assets.

Pictet jumped back into the nation’s equities in the third quarter before the reopening from Covid and plans to hold on. The view stands out in a market where gloomy sentiment dominates, with the CSI 300 gauge of mainland shares giving back its 2023 advance. Hong Kong’s Hang Seng Index has already suffered that fate, while a weak yuan is adding to the downward pressure on shares. The Nasdaq Golden Dragon China Index is down 8% for the year.

“The economic numbers are not what we thought they would be,” said Alexandre Tavazzi, head of Pictet’s chief investment office and macro research. “But when you’ve been closed for three years, you have to give it time before you get some confidence back.”

Read more: Chinese Stocks Wipe Out 2023 Gains as Headwinds Intensify

Once among investors’ favorites, bullish calls on Chinese stocks are slowly fading as a much-awaited revival failed to materialize after the reopening rally flopped at the end of January. Foreign funds offloaded more than $1.5 billion of mainland shares in just two trading sessions through Wednesday. Still, with the economy widely expected to grow more than 5% this year, some investors see China as one of the few bright spots in the global market.

Tavazzi said Pictet sees signs of more stability in government regulation, which should support business as domestic demand bounces back. MSCI Inc.’s China stocks benchmark, which is also down for 2023, may rise by 18% this year, assuming economic growth of as much as 5.5%, said Tavazzi.

“Now we are happy to be long Chinese equities,” he said, adding that electric vehicles, green energy and consumer stocks are among the areas Pictet sees long-term value.

PineBridge is similarly sanguine about the slump in recent months after a promising start to the year.

“Sure, when you open the floodgates, you’ll have an initial burst, and sure, things will slow down a little bit after that,” said Michael Kelly, global head of multi-asset. “But we still think they’re going to end the year on much firmer note than they are right now.”

One reason behind the optimism is the People’s Bank of China’s greater wiggle room to stimulate the economy compared with peers in many developed markets, who are still preoccupied trying to tame inflation. The PBOC has injected long-term liquidity into the financial system for sixth straight months, in contrast to the Federal Reserve, which has been tightening the monetary screws.

There’s also the low price-to-earning ratio of Chinese stocks after the battering they’ve taken since early 2021 thanks to Covid lockdowns, Beijing’s regulatory onslaught and geopolitical tensions. The Hang Seng China Enterprises Index trades around 8 times 12-month forward earnings, while European shares trade at around 12 times and US equities come in at about 18 times.

BNP Paribas Asset Management’s Chi Lo also highlighted the PBOC’s capacity to do more to support the economy. BNP is long Chinese government bonds and overweight the nation’s equities. In contrast to stocks and the currency, bonds have rallied out of the post-reopening slump, with the 10-year sovereign note yield now hovering around a six-month low.

He’s particularly drawn to the technology sector, where valuations have fallen to “very low levels.” Lo, senior investment strategist Asia Pacific, said he sees regulatory pressure on tech companies to be fading and that valuations should recover towards pre-pandemic levels.

--With assistance from Wenjin Lv and Sofia Horta e Costa.

(Adds Nasdaq Golden Dragon performance in third paragraph.)

Most Read from Bloomberg Businessweek

©2023 Bloomberg L.P.