BlackRock turns modestly positive on China stocks, saying policymakers can no longer

BlackRock turns modestly positive on China stocks, saying policymakers can no longer ignore slowdown without easing measures

• Money manager turns positive on tactical basis, saying asset allocation would need to increase in multiples before becoming a bullish bet
• Hong Kong stock market, dominated by Chinese companies, ranks among the worst performers because of regulatory onslaught

Zhang Shidong in Shanghai

12 Oct, 2021

BlackRock, the world’s biggest money manager, is turning “modestly” positive on Chinese stocks, betting that policymakers are likely to counter an economic slowdown by reaching for the stimulus purse and softening a regulatory crackdown on businesses.

The firm, which oversees US$9.5 trillion in assets globally, is “modestly positive” to upgrade its rating on onshore equities to overweight on a tactical basis, analysts including global investment strategist Wei Li said in an October 11 report. It retained an overweight bias on the nation’s bonds.

Given the small benchmark weights, and typical client allocation to Chinese assets, allocation would have to increase by multiples before they represent a bullish bet on China on a strategic basis, they added. China accounts for about 4.1 per cent weight in the MSCI All Country World Index while the US takes up 59.6 per cent.

“The growth slowdown has hit levels policymakers can no longer ignore,” they said. “We expect to see incremental loosening across three pillars: monetary, fiscal and regulatory.” Still, investors should be mindful of ongoing geopolitical tensions, they added.

Official reports showed manufacturing in the world’s second-largest economy cooled last quarter. Its stringent application of the “three red lines” rules to control excessive debt in the property sector has slammed homes sales, sending several indebted developers into financial distress. The latest power crisis will further derail recovery, economists have said.

China’s market regulator last week fined Meituan 3.44 billion yuan (US$533 million) for monopolistic practices, after docking Alibaba Group Holding US$2.8 billion in May. Authorities have also clamped down on private tutoring and data security of ride-hailing firms while pushing tech giants to share their wealth under the “common prosperity” socialist agenda.

Hong Kong’s stock market, a listing hub for mainland Chinese companies, ranks among the world’s worst performers this year while China’s onshore markets have traded sideways in recent weeks after scaling a six-year high last quarter.

China will release some of its key September economic data this week. Foreign trade data is due on Wednesday and inflation the following day.

Swiss private bank Union Bancaire Privee said Chinese stocks will continue to endure wild price swings, with the government determined to push ahead with its economic reforms.

Positive base effects on growth in 2021 and a political transition next year bolster the case for policymakers to expedite the revamps, which will touch “three burdens” on households: housing, education and health.

Tougher regulations are expected to be unveiled going forward to tackle these drags on Chinese families, it said in a monthly report published this week.

“Volatility is likely to stay with us for a while longer but we should have better visibility from the first quarter of 2022 onwards,” it said.