Supportive policies positive for Chinese equities

An asset manager is taking a positive view of Chinese equities this year.

Keep an eye on the potential for normalization of fiscal, monetary, and credit policies, said Caroline Maurer, head of China and Hong Kong equities at HSBC Global Asset Management.

She expects a strong rebound in corporate earnings, supported by an inventory restocking cycle, and robust exports.

Also, a strong yuan could be positive for earnings and help draw capital inflows into China’s equity capital markets, she said.

As for the current rally in Hong Kong, she expects continuing inflows of mainland funds as the Hong Kong market has underperformed the A-share market in the past two years.

In the short term, she favors stocks related to travel and economic growth normalization.

In the midium-term, domestic circulation, companies in e-commerce, healthcare and education are likely to outperform given they are a part of the government’s goal to build a service-driven economy, she said.

Meanwhile, technology innovation and technology localization are key drivers of the digitalization theme, due to the policy support in the Five-Year Plan, Maurer said. And renewable energy and electric vehicles, as well as advanced manufacturing would be the key focuses given China's commitment to achieve carbon neutrality, she added.

Ming Leap, associate director of fixed income, said the central bank is likely to remain accommodative, while using open market operations to manage market liquidity.

He expects capital flows into the mainland bond market to continue, due to appealing valuations compared with global counterparts.

As for debt risks, he said the overall default rate in China remains relatively low at 1.3 percent of the total onshore bond market in 2020.