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In a research note to clients Monday, BofA analysts said the firm is turning tactically constructive on China.
The analysts explained that the firm’s long-standing cautious view on China equities has primarily been premised on five areas of uncertainty, including its Covid policy, property sector policy, regulatory policy, monetary policy, and geopolitics.
On the current Covid policy in the country, they stated: “In recent weeks, we have seen nascent signs of reversal along four of the vectors, with last week marking a pivotal change in the zero-COVID policy – the most significant risk in China, as cited by 56% of the participants in the BofA Asia Fund Manager Survey.”
They added: “Some of the 20 new relaxation measures introduced on November 11 include reduced quarantine/ isolation days for close contacts and inbound travelers, allowing home quarantine, discontinuing tracking of secondary close contacts, reducing PCR testing requirements, scrapping “circuit breaker” rules for international flights, allowing closed-loop systems for business executives, and so on.”
On the country’s property sector policy, the analysts wrote that the administration also unveiled an RMB 250 billion rescue package in addition to a 16-point plan to help developers address liquidity issues by supporting their sales and maintaining their funding access.
“Noticeably, property bank and trust loans due in six months can be extended by one year, while bank officials approving additional funding to activate stalled projects will not be held responsible if such loans cannot ultimately be repaid, assuming that proper due diligence was done,” they added.
The analysts acknowledged that the firm’s long-term concerns remain in place, but they are turning “tactically constructive on signs of credible easing of policies in recent weeks, which should help China equities, especially in the energy, materials, industrials, and consumer discretionary sectors.”
