GT Voice: Why it’s the right time to bet on Chinese stocks
Published: Jun 05, 2022 10:16 PM
A-share Photo: VCG

A-share Photo: VCG

Global investors are returning to the Chinese mainland stock markets after the sell-off earlier this year as fund managers generally believe negative factors "have started to be reversed," the Financial Times reported on Friday.

Offshore investors using the Shanghai-Hong Kong and Shenzhen-Hong Kong stock connects bought a net 28 billion yuan ($4.2 billion) of Chinese mainland stocks over the past week, according to the report.

As of Thursday close, northbound trading through the stock connects saw a net capital inflow into the A-share market for five consecutive trading sessions. The continuous net capital inflow came at a time when the benchmark Shanghai Composite Index jumped more than 11 percent from the low point in late April. This could serve as a solid proof that foreign investors are still bullish on China's financial markets and have been tracking the market for buying opportunities.

It is true that China's worst epidemic outbreak in two years, the Russia-Ukraine situation and other factors hurt market sentiment in the past months. Nevertheless, with the continuous improvement of the epidemic prevention and control situation, the accelerated resumption of production in some regions in the country, and the central government's emphasis on stabilizing economic growth, investors have gradually regained optimism and rationality toward China's economic recovery and development.

The ChiNext board, China's Nasdaq-style board of growth enterprises, just recorded a monthly gain of 3.71 percent in May. Of course, a one-month gain is not enough to recover the losses of the previous months. The ChiNext board is about 26 percent down since the beginning of this year.

Nevertheless, it should be noted that the relatively low price basis of Chinese stocks has offered a prime opportunity for investors to step in. Any investor who believes in valuation may regret missing such an opportunity, especially at a time when major global markets are at risk of significant volatility due to geopolitical factors and the Fed's policy shift.

In the US, there is growing concern that the Fed's aggressive plan to curb inflation could lead to a recession, and any negative news now could easily spook investors and trigger a sell-off. 

The Nasdaq Composite Index recorded wide volatility this year, but it is generally believed that the worst may be not yet to come for the US stock markets because major stock indices are still at a high level. The Nasdaq index is still more than four times what it was a decade ago, which means that corrections will be inevitable.

By contrast, China's stock markets have more certainty in terms of growth potential. It is undeniable that the recent flare-ups have caused some shocks to economic activities, but it did not hurt the fundamentals of the Chinese economy. At present, two Chinese megacities - Beijing and Shanghai - have just emerged from the shadow of Omicron, bringing normalcy to social and economic activities.

Moreover, unprecedented meeting on stabilizing the economy has been held, sending an unmistakable signal about the rollout of more pro-growth policies. Also, China's willingness to accelerate financial opening-up hasn't changed. All these have laid foundation for the growing appeal of Chinese financial assets to foreign capital.

It will be regrettable if foreign investors miss out on this wave of Chinese investment opportunities.