Veteran Chinese stock picker, Andy Rothman of Matthews Asia says he’s gone from being cautiously optimistic on Chinese stocks to all-out bullish.
“Xi Jinping in recent days has given clear signals that he’s returning to a pragmatic approach to COVID, to the economy and to relations with the United States,” says Rotham.
Covid ‘pragmatism’
Rothman says the new measures on COVID mitigation announced by Xi Jinping on November 11 are seemingly designed to reduce obstacles on normal life in China, setting the stage for an economic recovery.
“For example, the Government will stop tracking people known as secondary contacts who has only minor risk of exposure to confirmed COVID cases. This should dramatically reduce the number of people forced into quarantine, lowering the risk to consumers of going to shops and restaurants and travelling.
“There’s a significant change in direction of the policy, towards living with virus and away from zero-tolerance for cases.”
Get investment ideas delivered to your inbox: Sign up for free to the Capitalist Exploits newsletter.
New policies to restore property sector confidence
Another set of new policies announced by the Chinese Government on November 12 are also significant for the outlook for Chinese stocks, according to Rothman.
“The 16 measures are a clear effort to reverse previous overly-onerous policy which throttled the residential property market,” he says.
“Xi had been extremely cautious about backing away from those policies, presumably out of fear of unleashing an overly-heated property market. I expect a gradual steady recovery in new home sales next year.”
“These two decisions on COIVD and property appear to be a coordinated effort to restore consumer confidence and jump-start one of the most important parts of the Chinese economy. This is consistent with what Xi said during last month’s party conference.”
Reprieve in China – U.S. ‘cold war’ will be a boost for Chinese stocks
Rothman is of the view that the meeting between Xi Jinping and Joe Biden at the G20 Summit in Bali indicates the pair is eager to ease tensions between the two nations.
“I do not expect U.S. China relations to improve significantly, in large part because of domestic politics in the U.S., but the odds of further deterioration will reduce significantly as a result of their (Xi and Biden) first in-person meeting since Biden was elected president.”
Rothman notes it’s also likely China and the U.S. are on a path towards ending the stalemate over Chinese ADRs, which will lead to a return in investor confidence in U.S.-listed Chinese stocks.
Related: How to invest in Chinese stocks