Key insights

  • 2021 was one of the toughest years for China equities. We underestimated the severity of government regulatory actions toward high-flying sectors and our response lacked urgency. However, we think we are past a turning point with regulations. Policy was key to last year’s market sell-offs – and could be key again for possible gains this year.
  • The People’s Bank of China (PBOC) cut its benchmark lending rates to boost the real economy, and the move is likely to be the start of an easing cycle. This supports China equities, particularly since the PBOC and Federal Reserve are starting to go in opposite directions.
  • The current ultra-negative China market sentiment highlights the gap between perception and reality, creating an environment where stocks could rally. We are very positive on China equities for the year.
  • Although valuations are still too rich for overconcentrated sectors such as renewable energy, several sectors were oversold last year and now present attractive investment opportunities. We like health care and property developers and lean toward offshore China H shares.
  • The biggest uncertainty for investing in China is always the same: will it continue on the road of economic reform and be open? The risk of a retreat is very unlikely in our opinion.

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