On February 21, the three indexes continued the trend of shock consolidation. As of the closing of the day, the Shanghai composite index reported 3490.61 points, down 0.001% on the day; Shenzhen composite index closed at 13471.16 points, up 0.09%; The gem index closed at 2804.60 points, down 0.79%. In fact, the A-share market has continued to fluctuate and adjust since 2022. Under this background, many foreign institutions are bullish on the A-share market and believe that its valuation advantage is prominent. Insiders also said that under the support of economic fundamentals, undervalued and other factors, foreign investors are expected to continue to increase the allocation of Chinese assets.
foreign institutions take a positive view of the future market of A-Shares
Since this year, the A-share market has experienced “sharp decline and small rise”. Although the Shanghai Composite Index and Shenzhen composite index have rebounded slightly since the Spring Festival of the year of the tiger, they have risen by 3.84% and 1.07% respectively since February. However, from the perspective of the whole year, the three indexes are still in a downward state in 2022, falling by 4.10%, 9.33% and 15.59% respectively.
However, with the market adjustment, many foreign-funded institutions believe that the valuation advantages of the A-share market have emerged, and their investment views on the A-share market have also turned relatively positive.
“Overall, we are optimistic about the prospects of China’s stock market in 2022. Although the market continues to adjust at the beginning of the year, the economy may stabilize again from the second quarter.” Lu Wenjie, investment director of BlackRock fund, said.
Liu Jinjin, chief China stock strategist of Goldman Sachs, Mu Tianhui, chief strategic analyst of Asia Pacific region and his team recently released a research report, saying that thanks to the continuous opening-up and reform of capital market (QFII reform), the broadening of investment channels (expansion of interconnection mechanism), the continuous enrichment of products (such as MSCI China A50 interconnection futures) and the evolution of market structure, for overseas investors, The investability of A-Shares is increasing. In addition, from the perspective of return volatility and differentiation, China’s A-share market provides many special investment opportunities. From a micro perspective, the risk return of many stocks is also attractive.
“Investors are too pessimistic about China’s stock market,” HSBC analysts said in a report on February 7 In its view, China is trying to stabilize economic growth. The strengthening of the US dollar is not good news for China’s stock market, but this is now widely known and has been included in the stock price. Even some good blue chips have attractive valuations. In addition, UBS also raised its China rating to “overweight”, and its emerging markets strategy team said in January that the most confident stock holding ideas include many Chinese Internet companies such as Alibaba.
The report released by Bernstein, a Wall Street investment bank, believes that the market expects the growth of new social financing in China and the stock valuation is more attractive than the rest of the world. Other factors include rare stock selection opportunities, foreign capital inflows and increasing returns.
multiple factors support foreign capital to increase the allocation of Chinese assets
In the view of experts, considering the macroeconomic fundamentals and the proportion of Chinese assets allocated by foreign capital, foreign investors are expected to continue to allocate Chinese assets for a long time.
On the one hand, compared with other overseas markets, foreign capital has a lower degree of asset allocation in China. For example, statistics show that as of last week (February 18), the value of the stock market held by northbound funds reached 2582.759 billion yuan, accounting for less than 4% of the total market value of a shares. The proportion of Chinese bonds held by foreign investors is also less than 5%, and there is still room for foreign capital to continue to allocate Chinese assets in the future.
On the other hand, with the decline of the market after the Spring Festival, the overall valuation level of A-Shares has shrunk significantly. As of the closing on February 21, the dynamic P / E ratio of the CSI 300 index was 12.59 times, which was at a relatively low level in terms of performance in recent ten years. Although the S & P 500 index has experienced a correction in recent times, its P / E ratio is still about 25 times. In contrast, the valuation advantages of A-Shares are obvious, and the process of continuous allocation of A-Shares by foreign capital is still continuing. As of February 21, northbound funds continued to show a net buying state in February, with a cumulative net buying of 4.824 billion yuan, which has been net buying for 16 consecutive months.
The expected improvement of economic fundamentals also provides strong support for foreign capital to allocate Chinese assets. According to the data released by the National Bureau of statistics, the PMI of China’s manufacturing industry was 50.1% in January this year, down 0.2 percentage points from the previous month and stable at more than 50% for three consecutive months. The purchase volume index, new export order index and expected index of production and operation activities all rebounded month on month. In an interview earlier, the relevant person in charge of the national development and Reform Commission said that the characteristics of China’s economic development with strong toughness, great potential, broad prospects and long-term improvement have not changed. China has the foundation, conditions, confidence and ability to maintain stable, healthy and sustainable economic development.
In terms of policies, the national development and Reform Commission and other 12 departments also jointly issued the notice on printing and Distributing Several Policies to promote the steady growth of industrial economy in the near future. Citic Securities Company Limited(600030) according to the analysis, the coverage of the recent steady growth policy has been expanding, the upgrading of the manufacturing industry and new infrastructure have helped to make steady progress in investment, and the rescue measures of the service industry have accurately pointed to the short board of consumption. The continuous refinement of policies in the future is expected to promote the faster stabilization of consumption. Secondly, after the policy diffusion, it is expected that the main line of steady growth will be more diversified, and the value and growth style in the main line of steady growth will be more balanced. China International Capital Corporation Limited(601995) also said that under the background of relatively low market and low expectation, steady growth was strengthened, and there were more than expected credit and social finance increments, which had a positive impact on the market. The continuous implementation of policy details and the improvement of forward-looking indicators are conducive to the improvement of growth expectations.
In addition, at present, investors’ risk aversion is heating up, and the A-share market shows a certain risk aversion attribute. ChuangJin Hexin analyzed in the macro strategy research report that under the background of high volatility of risk assets at the beginning of global monetary tightening, the global allocation of funds will find a safe haven. The valuation of A-Shares is low, and China is the only major economy with room for monetary expansion, which is expected to receive global capital inflows.
