To The Moon

Border opening, signalling positive policy direction. All key hurdles to China’s reopening will be removed in early January 2023, signalling a positive policy direction. Despite MSCI China Index & CSI300 Index have increased 27% & 7% respectively since November 2022, i reiterate my constructive view on Chinese equities. The offshore Chinese equities is also relatively more vulnerable to the US economic & equities market development, i Ah forecasting a US recession in 2H. Hence, i maintain our relative preference to the onshore A-share Chinese equities within Chinese equities.

The ongoing outbreaks across the country are likely to weigh on economic activities in the near-term and earnings downward revisions pressure is likely to persist into 1Q23. Looking beyond the near-term bumpy reopening, we expect economic activities & earnings to pick up & earnings growth to rebound back to around 13% year-on-year (YoY) in 2023 for MSCI China Index. We believe earnings recovery would be a key driver for potential index upside this year. Valuation of offshore Chinese equities (MSCI China) is still trading at a discount to the MSCI Emerging Market (MSCI EM), suggesting that the Chinese equities market has yet to become a crowded trade.

Large cap internet and platform plays could be regarded as Chinese consumption proxies when increasing exposure to Chinese equities. The faster-than-expected reopening and focus on economic development would support the cyclical recovery, i.e. the reopening theme, which primarily focuses on consumption related companies and industries. In light of increasing mobility, regulatory guidance aimed at normalisation & a focus of economic development, it sets the stage for markets to focus more on the fundamentals of companies. We believe the market is starting to re-engage in structural themes that are aligned with the policy directions, which would benefit from policy tailwinds. 

Alibaba is likely to be one of the beneficiaries of this reopening. I will be looking more into this stock to see if there are further upsides as the stock has rallied quite a bit recently.

@TigerStars 

DYODD