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Investment strategy
December 23, 2021
2 mins

China’s policy signal: Its what investors have been waiting for

December 23, 2021
2 mins
Ken Peng
Head of Asia Investment Strategy
SUMMARY

As the rest of the world moves towards less policy stimulus and lower growth in 2022, China may be moving in the opposite direction. We believe, this may be a cause for outperformance after a harrowing year of uncertainty.


  • In December, China’s leadership shifted its policy stance to fully support growth, and appropriately early. After the self-inflicted pains in 2021 driven by a political drive to realign economic direction towards common prosperity, the leadership is pivoting to another major political goal – to ensure stability and restore growth ahead of the 20th Party Congress in 2022.
  • We note that previous Party Congress years had produced positive credit impulse, as well as positive results for the equity market.
  • Property related tightening have caused a dramatic decline in bond prices and economic growth. The easing of these policies will likely bring about a similarly notable recovery in 2022. Though default risks remain, we see financing access is being restored and would likely contain systemic risks. Property prices are falling, but likely limited as homebuyer leverage is low and would unlikely cause broad panic selling. The proposed property tax trials are likely to take over five years and would only apply to a small portion of homeowners.
  • We see a tactical opportunity in property sector bonds in 2022 amid easing. But their long-term prospects remain fraught as there may be more rounds of deleveraging until the sector’s capacity is more in line with demand.
  • China’s COVID policy is evolving from zero tolerance to dynamic clearance. As Omicron has already entered China, potential tightening in COVID restrictions could slowdown economic activity in 1Q. However, we see gradually more flexible policy towards foreign visitors (with quarantine) and towards quarantine free travel between Mainland and Hong Kong as signs that China may be more resilient to future variants.
  • In between two incompatible regulators, the Chinese ADRs face an uphill battle. Investors should shift to Hong Kong-listed shares at the earliest. But potential delisting before 2024 should not detract dual listed firms’ potential to recover earnings.

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