Despite the easing of the stringent Covid lockdown from the first half of this year, BNY Mellon IM is holding back from going overweight on China equities.

“We are neutral towards Chinese equities. Given the reopening of Shanghai and easing of lockdowns, we still see a few Covid cases here and there,” said Aninda Mitra, head of Asia macro and investment strategy at the firm.

“Although the intensity of lockdowns and the mobility restrictions are not as binding as they were a few months ago, many people are still at a ‘wait and watch’ mode, which holds us back from being more bullish on the Chinese market,” he added.

A drag from the property sector, as well as weak business confidence and labour markets, are also contributing to the asset manager’s views.

Nonetheless, BNY Mellon IM believes Chinese equities have cheapened significantly and three sectors will perform better: infrastructure, technology and consumer staples.

The easing of lockdowns and local government-driven infrastructure stimulus is going to lift China out of its second-quarter slump in the remainder of the year, said the asset manager.

“We’ve already seen specific local government bond issuance pick up, and we would not be surprised if there’s more central government bond issuance to support the economy,” Mitra explained.

The technology sector, which has been under scrutiny for the past months, is another area that is going to rebound, with BNY Mellon IM observing that regulations have dialled down over the past few months.

Another sector expected to perform is consumer staples, which is likely to benefit from pent-up local demand amid the easing of lockdowns.

Further, with the reopening of ports and improvements in logistics, supply chains in China will continue to recover, in turn benefiting exports of consumer staple, added Mitra.

Although some market observers might worry that Chinese exports may be disrupted if demand for US durable goods starts to dry up, BNY Mellon IM is not overly concerned given there is yet to be a material reduction in US demand.

“I think the Fed is trying to engineer a soft landing in the economy, so we have yet to see a very steep drop off in the US demand. Until that comes into focus, I expect Chinese exports will continue to perform well,” Mitra explained.

The death of The Queen, Asset managers join the mourning, Franklin Templeton’s Metaverse, Crypto investments out of spotlight, The futurists, ECB’s woes, Property crash and much more.

Published by Bonhill Group Plc, 29 Clerkenwell Road, London, EC1M 5RN. Copyright (c) 2018.

Fund Selector Asia provides up-to-the minute news, tools and professional resources for key fund selectors and distributors across Asia in both the wholesale and institutional sectors. No news, articles or content may be reproduced in part or in full without express permission of Fund Selector Asia.

Nothing in this publication amounts to a personal recommendation or endorsement. The material contained in this publication is intended for information only and does not constitute the provision of advice. Neither the writer nor the publisher accepts any responsibility for any loss or damage caused by any use of or reliance on the opinions or views expressed in the publication Fund Selector Asia.

Part of the Bonhill Group.