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Is it time to buy China, or should investors continue to avoid this market? A lot has happened this week surrounding the Asian giant. Reflecting persistent weakness from last year, Chinese stocks fell to an almost five-year low last week. But this week, China began easing monetary policy, pledging to reduce the amount of liquidity banks need to hold in reserves. Reserve requirements for banks will be reduced by 50 basis points from February 5th. The central bank also said on Wednesday there was room for further easing. Bloomberg News reported earlier this week, citing people familiar with the matter, that China is considering a $278 billion package to rescue its stock market. Is it time to return to the Chinese market? Investors have been avoiding these investments given factors such as the real estate debt crisis and deflation that have created financial risks throughout the economy. Here’s what analysts think: Brendan Ahern, CraneShares’ chief investment officer, acknowledged that the Chinese market is facing “peak pessimism” but that there is potential for “a pretty explosive rally” at this level. “I don’t think you can stay naked for long. I think you need to protect yourself using options strategies and structured notes. But as experts, we know that you should buy “When there’s blood on the streets, this is your time to buy — you just have to be very careful,” he said Thursday on CNBC’s “Street Signs Asia.” Andrew Lapping, chief investment officer at Ranmore Fund Management, said the sharp decline in the Chinese market was an “opportunity”. “Over the past year, the S&P 500 index is up more than 20%, while the Hundsen index is down 30%. It is impossible for the underlying business values to diverge this much,” he said in a note Wednesday. ” he said. He added: “Especially due to poor performance over the past month, we have an opportunity to acquire a high-quality, well-capitalized company at a very low price. This is an exciting opportunity.” Winnie Wu, chief China equity strategist at BofA Securities, believes that although China’s economy is weakening, its problems are “not as bad as the stock market is reflecting.” “Therefore, the stock market is certainly charging a much higher equity risk premium…There are also concerns about policy direction and policy clarity…These measures to stabilize the stock market will help address this issue. I think it’s more helpful than creating a floor to deter some “surrender,” she said. Prominent value investor Guy Speier was less optimistic, saying the $278 billion package was not enough. “The market is a strange beast, and throwing state money at this problem is not going to solve it,” he told CNBC’s Tanvir Gill. “The Chinese Communist Party should take a hard look at its policies and listen more to the needs of businesses. We have to start tilting the curve.” But he believes the government will ultimately make the right decision. “Of course China can and China will bounce back,” he said. “Now that China has reversed its coronavirus policy, I think it can also adjust the unfriendly policies of the past few years.” When and how will the market recover? He said the stock market will improve, according to Wu. Two things need to happen for this to happen. First, consumers need to regain confidence in the property sector, he said, adding that 2024 “will be the most challenging year” for the sector. Next year will see more government projects related to social housing and rehabilitation, supporting demand for goods, he added. “Meanwhile, China is asking investors what the new growth engine will be, what comes next after real estate, and whether it will create enough jobs to boost GDP by 4%, 5% or even 3%. We need to convince them that it’s going to be big enough,” Wu said. Wu predicts that the market turnaround could even occur within 12 to 18 months. “We’re entering into this adjustment…to be less reliant on real estate…to something high-tech, advanced manufacturing,” she added. Mr Ahern said the government needed to continue its efforts to restore investor confidence. “There has been a change in the government’s tone and policy towards foreign investors and foreign companies. That trust will not return overnight, but the government must continue to move in this direction. “We have to continue to be transparent about what we’re going to do next,” he said. How to invest French asset manager Amundi said there was a renewed focus on technology and the energy transition. In the field of artificial intelligence, for example, China is “rapidly closing the gap” with the United States in AI research. Amundi said the company is also leading in quantum computing. JPMorgan and Morgan Stanley like these top U.S.-listed Chinese tech stocks. Amundi noted that China has been the biggest investor in clean energy over the past decade and is now the world’s largest producer of solar panels, wind turbines and electric vehicle batteries. One chief investment officer likes this Chinese EV and mining stock to take advantage of the energy transition. Investors should hold stocks in sectors that will benefit from the recovery, such as consumer, internet and industrials, as well as high-yield stocks in defensive sectors such as banks, insurance companies and utilities, UBS said in a Jan. 17 note. He said that the barbell strategy should be adopted. The latter category can “ride out market volatility in case further policy support falls short of expectations.” The barbell strategy balances reward and risk by investing in high- and low-risk assets. “Over the longer term, we will prioritize sectors that benefit from strong policy tailwinds, including industrial automation, digitalisation, electric vehicle (EV) supply chains and renewable energy,” the bank said. UBS likes the following stocks: China Internet: Alibaba, Baidu, NetEase. Industry: China Communications Construction. Banking and insurance: China Construction Bank, Ping An Insurance. Renewable energy: China Longyuan Power Group, Huarun Power. —CNBC’s Tanvir Gill, Michael Bloom and Evelyn Cheng contributed to this report.
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