- Structural changes in China have a bigger impact on Chinese equities than the macro outlook
- The consumer discretionary sector is the top pick
Investment Manager China Post Global, which promotes a family of innovative Exchange-Traded Funds (ETFs) providing access to commodities and emerging markets through its brand Market Access, remains positive in its outlook for China.
Zhixiao Wu, Chief Economist at China Post Global said: “Various data confirms that China’s growth momentum is being sustained on both the production and demand side, and global growth momentum is expected to pick up after the introduction of a Covid-19 vaccine.
“One key indicator that policy makers watch is the growth of fixed asset investment in the higher-end manufacturing sector, whose recovery was interrupted by the pandemic, but whose subsequent growth has been quite rapid. Another key indicator, employment, has overshot the policy target as well.
“China Post Global says structural development matters more than the macro-outlook for Chinese equities and potential changes here could provide a real boost.”
It says Technology, Media and Telecom (TMT) names are still favoured by Chinese government policy, but their share performance may come under pressure if economic growth is not as remarkable as their stretched valuations suggest.
It believes the Healthcare sector is likely to remain expensive, and warns electric vehicle and semiconductor companies, many of which are still favoured by both market and policy, have expensive valuations, even when considering the distortion from the pandemic.
It says Consumer Staples are seeing strong momentum again, as the market prefers certainty.
China Post Global believe growth, as well as earnings, will remain upbeat in the coming quarters. However, the PBoC’s monetary policy will not be as supportive as before, thus market volatility may elevate as a result. The combination of buoyant growth expectation and gradually tightening monetary policy stance suggest a low volatility portfolio of China A shares is advisable for 21Q1.