Chinese stocks to “rebound like crazy”: Steno Larsen

Respected macro analyst Andreas Steno Larsen has turned China bull, outlining the case for Chinese stocks and the Chinese economy to “rebound like crazy” in the coming months.
“China is undoubtedly going to rebound markedly this year compared to a lackluster 2022. Not only will the reopening lead to a natural rebound in services demand in the economy, but China is also recovering from an almost Lehman-like credit event in 2021/2022,” he said.
Steno Larsen labelled the Chinese credit market drawdowns seen in 2021 and 2022 as “outrageous” saying it resembled the 2007-08 financial crisis, and rationality is now returning to the market.
“Credit has stabilized markedly since the first signs of the Chinese reopening in November last year and most major credit have more than doubled since. This is a huge sequential improvement in credit conditions, which is undoubtedly going to fuel credit growth relative to 2022 in China.”
Asia Markets guide: How to invest in Chinese stocks
Divergence from the west
Another factor tipped to lead to Chinese stocks outperforming the United States in 2023 is China’s monetary policy divergence from the west.
“The global economic cycle has never been more decoupled than right now in newer economic history. Chinese and US rate cycles have typically moved in tandem since 2008, but the decoupling of cycles has been outright stunning since the pandemic began in 2020.”
Steno Larsen shared a chart showing the stark decoupling of bond yields in China vs the United States.

The divergence was also highlight by prominent Australian investor Jacob Mitchell last year, in this Asia Markets article.
“We think China is an attractive opportunity to build exposure to great companies at attractive valuations that will act in a generally non-correlated manner to portfolio exposures sensitive to Western economic outcomes,” said the Chief Investment Officer.
Chinese stocks rebound potential underestimated
Steno Larsen also points to improving Chinese real estate conditions and the current low valuations afforded to Chinese stocks as reasons to be bullish on the world’s second-largest economy in 2023.
“Chinese equity price-to-earnings ratios trade with a substantial discount to median P/E values and there is no significant fiscal or monetary headwinds for Chinese equities relative to US or European equities,” he said.
“We may be underestimating the rebound potential in China should the authorities continue to underpin credit and increase attempts to restore calm in Chinese funding markets as they have been busy doing since late last year.
“Buying Chinese assets or assets outside of China with a link to China may prove to be your portfolio liberator in an otherwise tricky road ahead in 2023.”
Andreas Steno Larsen is the Founder and CEO of Copenhagen-based specialist macro and geopolitical research platform, Steno Research.
He was formally the Global Chief Strategist at Nordea – the largest bank in Northern Europe.
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