The case for being bold on China has been around for some time. However, it is interesting to note the reasons a Chinese fund manager has for turning bullish on Chinese equities. Bloomberg report that Zhao Yuanyuan’s fund at the Shenzhen Qianhai JianHong Times Asset Management Co, has returned 138% so far this year on the falling Chinese equity market. Now, Zhao has shifted from neutral to bullish, and here are the reasons.
- Growth lifting stimulus is boosting sentiment,
- Shanghai is easing its week-long lockdown,
- US inflation expectations are edging lower.
The key risks Zhao sees for this outlook are:
- Further China Covid flare-ups,
- Zhao will be keeping an eye on daily trucking traffic levels,
- A change in Covid policy,
- Ukraine & Russia conflict.
Analysis
Zhao’s outlook is very logical and the Covid risks she has identified are ones that helped her fund outperform on the way down. So, this is someone with a good sense of timing. The fact that US inflation has shown signs of pulling lower is key to this outlook in the near term. The key driver for the Fed’s hiking actions is inflation. If inflation pressures fade then the Fed can relax on hiking. After all, the US economy is in a state where the Fed considers it able to withstand rate hikes rather than the economic growth demanding them. Questions marks do remain too over whether China can exit its Covid Zero plan. However, risk can be easily managed and markets are starting to show signs of turning around. Check out China’s 50 index chart for the technical signs a bottom is in.
