Share prices are checked by investors at a securities firm in Nanjing, Jiangsu province. XING QU Outlook of global wealth manager shows Chinese stocks among most preferred.
With various uncertainties continuing to cloud the global economy, the clear path of China's economic recovery has provided investors with a key growth opportunity and upside potential in the country's stock markets, a global wealth management giant said on Wednesday.
The index has started to surpass global peers, which may continue in the second half, according to Hu Yifan, regional chief investment officer and head of macroeconomics for Asia-Pacific at UBS Global Wealth Management.
The main reason behind UBS'upbeat tone is China's distinct trend of economic recovery, said Hu. It's certain that China's economy will recover in the second half. This is a different from many other economies that are plagued with downward pressures. The MSCI China Index, denominated in the US dollar, had a gross return of 1.19 percent in May, compared to 0.19 percent of the MSCI ACWI Index, a global equity index.
Hu said that the global economy may face mounting uncertainties in the rest of the year, as the US economy has a 40 percent chance of achieving a soft landing and a 30 percent chance of experiencing a sharp fall in growth and the currently elevated levels of inflation.
In the second half, China's economy will likely accelerate with consumption set to pick up steam amid better containment of COVID 19 and investment growth foreseen to stay steady, driven by infrastructure and manufacturing sectors, Hu said.
She said that the country's mild inflation level, relatively low stock valuations and supportive macroeconomic policy are also key ingredients of the attractiveness of Chinese equities.
The Shanghai Composite Index, a benchmark of China's A-share market, fell 1.43 percent to close at 3355.35 points on Wednesday, its biggest loss in more than a month, after the central bank withdrew liquidity on a net basis for the third consecutive day this week, for the third consecutive day this week.
While the move of a net basis has raised concerns among some investors that the central bank will turn less supportive in the second half, Hu said that monetary conditions still need to be accommodative to sustain China's economic recovery.
I expect policy support to be strengthened, Hu said, adding that there may be a reduction in the reserve requirement ratio or RRR and credit easing for smaller businesses and the property sector during the remainder of the year.
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More measures to boost consumption may be in the pipeline, such as in the sectors of automobiles and green appliances and in the form of consumption vouchers, according to Hu.
Hu said that China's economy will grow by around 3 percent this year, because of the possibility of enormous stimulus for the sake of meeting the GDP growth target of this year's GDP growth target of around 5.5 percent.
In a report on Tuesday, the Bank of China said that the central bank is expected to maintain ample liquidity conditions via various tools in the second half, including cutting the RRR if necessary.
The BOC report said that the uptick in China's A-share market may continue because of the policy support to facilitate economic recovery, but fluctuations may persist due to COVID 19 uncertainties, slower global growth and other factors.