Chart of the Week: Is It Time to Buy Chinese Stocks?

Billy Toh

June 24, 2022

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The brightening mood shown by investors towards Chinese stocks is leading to talk of a new bull market in China.

This is as the share prices of technology companies, such as Alibaba Group Holding Ltd (SEHK: 9988) (NYSE: BABA) and Tencent Holdings Ltd (SEHK: 700), have rebounded from their multi-year lows.

Our Chief Investment Strategist, Lim Say Boon, shared in his article on Big Money, “US Bear Market Likely to Continue while Chinese Stocks May Benefit”, that some of the technical indicators suggest a breakout of Chinese stocks above technical resistances.

Policy support lends weight to China bulls

Chinese tech shares in Hong Kong staged a strong rebound, rising 2.8% after China’s President Xi Jinping chaired a top-level meeting that approved a plan for further development of large payment firms and the fintech sector.

Aside from that, China’s recent commitment to fiscal and monetary stimulus have been welcomed by the market as opposed to the monetary policy tightening and fiscal consolidation in the US.

Attractive valuation leads to rotation back into tech sector

There is also a belief that the worst is over for China tech stocks as seen by the rotation back into the sector after a year of heavy selling – which wiped out almost US$2 trillion at the height of the rout.

With Chinese authorities set to revive its economy, cheap valuations have attracted foreign investors even as global stock markets have collapsed into a bear market.

The gradual easing of COVID-19 restrictions, coupled with continued monetary and fiscal support, also mean that Chinese stocks could outperform global peers in the second half of this year.

Long-term investors should maintain a diversified portfolio

As a long-term investor, I believe that a diversified portfolio remains essential especially during a bear market.

While I think that timing the best entry into the market is futile, I do believe that the current environment should provide a good point to diversify into the Chinese economy.

The long-term growth in China remains intact and while geopolitical tensions and the lack of transparency could remain a concern for investors outside China, I think decent exposure is vital for any investor.

And as Say Boon said in his article, China still has considerable policy ammunition and is at the start of an easing cycle.

The chart below could be an indicator of the potential outperformance of China stocks as compared to global equities over the remainder of 2022.

Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.

About the Author: Billy Toh

Billy is passionate about the capital market and believes in investing for the long haul. Prior to this, he was an economist at RHB Investment Bank, covering Thailand and Philippines market. He also worked as a financial journalist at The Edge Malaysia and has experience working with an asset management firm. Aside from the capital market, Billy loves a good conversation over a cup of coffee, is a fitness enthusiast and a tech geek.