The number of investors with underweight calls exceeded their opposite camp by 9 percentage points in December, unchanged from November, according to the latest Bank of America (BofA) survey of global and regional investors. That made them the most bearish on China relative to 11 other Asian markets.
Investors would rather stick to a wait-and-watch approach or look for opportunities elsewhere than be exposed to China equities, the survey showed, with 62 per cent of them taking that stance.
“Investor interest towards risk assets in China is shockingly low,” BofA strategists including Ritesh Samadhiya said in a December 19 report. Investors preferred to stay out rather than be exposed, “given their belief that Chinese households will stay put in a preservation mode”, they added.
The apathy extends beyond the near-term, with 74 per cent of the respondents expecting a structural derating of Chinese stocks over the long haul, BofA said. Only 19 per cent of money managers predicted stronger growth in China over the next 12 months, falling below the level seen during the market slump in October last year.
China to suffer US$65 billion capital outflow in 2024 as risks, sentiment drag
China to suffer US$65 billion capital outflow in 2024 as risks, sentiment drag
Some 254 people overseeing US$691 billion in assets participated in the BofA survey. Some 219 with US$611 billion in assets participated in the global survey from December 8 to 14, while 140 with US$310 billion responded to the regional survey, the US bank said.
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While a large majority of fund managers continued to see more monetary easing in China, that has done little to move the needle. That could reflect pessimism on the ground, given China’s restrained rhetoric to virtually rule out a policy “bazooka” package, Samadhiya wrote.
China’s economic struggles have made shorting the nation’s stocks the second most crowded trades among fund managers this year, trailing only to the bullish bets on the “Magnificent Seven” or US tech mega-caps including Apple, Amazon and Alphabet, the bank said in a separate report.
Nearly a third of global investors now see China’s property sector as the most likely source of a systemic credit event, replacing US commercial real estate, BofA said. Despite low likelihood, a banking crisis in China was mentioned for the first time among the biggest tail risks that could trigger a global recession.