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China's stuttering post-pandemic recovery is eroding the confidence among regional fund managers about the outlook for the nation's growth and stock market returns, according to a Bank of America survey.
Some 20 per cent of participants are banking on Asia's largest economy to strengthen over the next 12 months, the US bank said in a report, based on a June survey of 166 investors who manage about US$329 billion of assets. The ratio slipped from 49 per cent in a May survey and 79 per cent in April.
While not outright bearish, a noticeable lack of risk appetite has crippled the stock market in recent months, with only 5 per cent of investors in the survey holding an overweight position in China versus 27 per cent in April and 39 per cent in March, the bank added.
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"The fragile economic recovery in China has underwhelmed one and all," strategists including Ritesh Samadhiya wrote in the June 13 report. "Market expectations in China are tepid as well, although not outright bearish."
China's economy has been struggling as the reopening euphoria has faded. Manufacturing contracted last month while exports shrank, while deflation deepened and consumption waned. That has partly contributed to a 17 per cent sell-off in the MSCI China Index, a gauge tracking US$2 trillion of stocks, from its January peak.
Nomura forecasts the MSCI China Index to reach 67 by the end of 2023, implying a 7 per cent upside from the current level. It expects the MSCI Asia ex-Japan Index to rise 3.3 per cent to 671. Goldman's forecast for the MSCI China Index is 70 by March 2024, while Morgan Stanley sees that level only by June 2024.
Almost two-thirds of fund managers in Asia now expect Chinese households to preserve savings at the expense of investments, contrary to optimism the US$87 billion excess savings stored during the Covid-19 pandemic would end up in the stock market. The majority is sticking to a structural derating view for China equities, with one-third suggesting the market could test the low in October 2022.
"Policymakers are behind the growth curve," Arthur Budaghyan, chief China strategist at BCA Research in Montreal said in a report on Wednesday. "The economy will disappoint unless Beijing provides 'irrigation-style' stimulus, [which] is not our base case." It is cautious on Chinese stocks and China-related plays.