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Personal areaPandemic stimulus boosted everything from stocks to crypto and property worldwide in 2021. Unfortunately, China went the other way as Beijing officials took action to deflate bubbles.
The result is one of the most extreme divergences between major financial markets in recent history. This year’s sell-off in the HK50 index means the gauge lags global peers by 37 percentage points, the most significant gap since 1998.
Investors remain vulnerable to the Communist Party’s unpredictable policymaking. Hopes that Beijing was close to the end of a crackdown on the tech sector were dashed when Didi Global Inc. was asked to delist from the US.
The growing divide between Beijing and Washington also threatens company profits. On December 15, Chinese biotech stocks plunged after the Financial Times said the US Commerce Department plans to ban some companies in the industry from using American technology.
History teaches us that these are usually the periods that offer the most attractive opportunities. Wall Street analysts and experts predict that the Chinese index can make up to 40% profit in 2022, especially as Beijing shifts to monetary policy easing.
The global market expects policymakers to support the economy in 2022 to prevent a hard landing. That would mean easing off on a regulatory pressure that has depressed the valuations of Chinese assets. The People’s Bank of China reinforced that consensus this month when it freed up liquidity for lenders. Moreover, on Monday, December 20, the government decreased the key rate from 3.85% to 3.8%.
Key comments:
Goldman Sachs
"We believe Chinese stocks will have a better year in 2022 as the market recovers from a major correction and transitions into a 'hope' phase, where P/E expansion typically trumps weak fundamental growth and drives strong equity gains."
Morgan Stanley
"MSCI China has had its worst ever relative performance drawdown vs. broad emerging markets in 2021...despite such a record underperforming year, we still see some lingering risks skewed towards higher volatility or more downside in the near term. This makes us believe that now is not yet the right time to go bullish at a broad index level."
HSBC
"We think markets have been overzealous in selling Chinese stock... most funds are underweight and as the focus returns to growth in China, we think this market will roar back."
HK50 weekly chart
HK50 is trading above the global trendline on the weekly chart.
Monthly RSI has found its support at the level of 39.50.
We expect the price to consolidate between 23 000 and 24 000 in the first quarter of 2022. After that, the Chinese index will begin its way to the top with targets at 26 000 and 29 000.
