Buy the dip in China markets despite Covid issues: BOFA Securities

Short-term corrections in the Chinese inventory markets generally is a shopping for alternative for buyers, says a strategist from Bank of America Securities.

Winnie Wu, a China strategist at the funding financial institution, acknowledged that there is nonetheless a possible volatility from China’s evolving Covid scenario, and there could possibly be extra unhealthy information forward if Covid circumstances rebound or actual property firms default on their debt.

“But you know, generally speaking, looking at the bigger picture, the worst in terms of corporate earnings, the disruptions, Covid cases — those should be behind us in the second quarter already,” she advised CNBC’s “Street Signs Asia” on Wednesday.

Wu pointed to latest bulletins akin to lowered quarantines for worldwide guests to China.

“China is sticking to the zero-Covid policy, but we’ve seen some changes,” she stated, including that she hopes the authorities would attempt to decrease disruption to the day by day lives of residents.

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“Even though we are seeing some rebound in Covid cases, [and] we’ve seen a few more cities start to do this mass testing, … I doubt we’ll go back to that extended lockdown like we’ve been through in second quarter,” she stated.

Shanghai is conducting Covid testing in a number of districts this week after detecting new Covid circumstances, a press release on the metropolis’s WeChat account stated.

Wu additionally pointed to Bank of America Securities’ so-called “wax-and-wane indicator” which measures sentiment primarily based on components akin to funding flows to foretell the outlook for China’s markets.

We advise buyers to journey on the rally and to take these short-term corrections as shopping for alternatives.

Winnie Wu

China strategist at Bank of America Securities

That indicator is presently in the very bullish zone. During backtesting, the very bullish zone signaled a 100% probability that the CSI 300 index will rise in the close to time period, with median returns in the following two to 6 months in the excessive teenagers, she stated.

“So we stay positive. We advise investors to ride on the rally and to take these short-term corrections as buying opportunities,” she stated.

Mainland China markets have outperformed main world indexes in the previous month, however traded decrease on Wednesday.

The Shanghai Composite closed 1.43% decrease on Wednesday, whereas the Shenzhen Component fell 1.25%. The CSI 300 index, which tracks the largest mainland-listed shares, shed 1.46% that day.

— CNBC’s Evelyn Cheng contributed to this report.

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