The new guidelines stress the quality of listed companies, regulatory supervision and investor protection, marking a shift from a focus on development in previous policy frameworks.
Joining the bull camp, UBS raised its rating on the MSCI China Index and Hong Kong stocks to overweight last month, citing earnings resilience and policy support. That reversed its decision in August to downgrade the rating on Chinese stocks to neutral.
Last week, BNP Paribas upgraded its view on the MSCI China index by adopting the bull case as the new base scenario, suggesting a 4 per cent additional upside from current levels.
China’s onshore stock exchanges reopen on Monday after a weeklong break and could post gains after top policymakers signalled further support for economic growth at the Politburo meeting on April 30.
“Looking ahead, we believe the broader index may gradually rise further over the next one to two months, as investors anticipate the potential structural reform measures to be introduced at the long-awaited third plenum,” said BNP’s note published last week.
Recent macro data from the world’s second-largest economy has indicated, albeit tentatively, that the trough of the economic downturn may now be in the rear-view mirror. There is a growing sense that China can still hit the 5 per cent GDP growth target even though the economy has yet to begin firing on all cylinders.
“The Chinese economy could be ready to turn the corner, in which case current valuations would make for an attractive entry point,” said Tim Waterer, chief market analyst at KCM Trade.
Waterer added that investors likely want to see some better data domestically before ramping up their China exposure further, pointing to inflation data which is still borderline deflationary and muted domestic demand.
“The April Politburo meeting statement reflected a strong commitment to stimulate growth, especially in the discussion on potential property destocking measures,” the BNP note said.
“The Politburo meeting statement also endorsed the phrase ‘growing patient capital’ for the first time, following the CSRC proposing this term late last year. This indicates there will be more follow-up measures to improve long-term funds participation in capital markets and strategically important industries, benefiting our China high dividend and buy-back themes.”
DBS Bank analysts said over the weekend that cheap and under-owned Chinese equities appear to be a decent hedge for global investors. Meetings with foreign investors also indicated growing interest in Chinese equities, while outflow from US-domiciled investors had stabilised, suggesting that their adjustments from last year are largely complete, DBS said.
“The valuation gap between Hong Kong stocks and US stocks has reached the widest on record,” they said.
Daiwa Capital Markets said that although the recent rally had been mostly driven by fund flows and sentiment, rather than fundamentals, it was a good start for the return of foreign capital.
“While China stocks do not appear ready for a multi-year rally, the significant outperformance of US and Japan equities over A-share and Hong Kong ones over the past two years should narrow in 2024, in our view,” they said.