Short-term corrections in Chinese stock markets may be a buying opportunity for investors, says a strategist at Bank of America Securities.
Winnie Wu, a China strategist at the investment bank, acknowledged that there is always potential volatility in the development of the Covid situation in China, and there could be more bad news to come if the cases of Covid rebound or if property companies default on their debt.
“But you know, generally speaking, looking at the bigger picture, the worst in terms of corporate earnings, the disruptions, the Covid cases – those should be behind us already in the second quarter,” he said. she told CNBC’s “Street Signs Asia” on Wednesday. .
Wu pointed to recent announcements such as reduced quarantines for international visitors to China.
“China is sticking to the zero Covid policy, but we have seen some changes,” she said, adding that she hopes authorities will try to minimize disruption to residents’ daily lives.
“Even though we are seeing some rebound in Covid cases, [and] we’ve seen a few more cities start doing these mass tests, … I doubt we’ll go back to this extended lockdown like we experienced in Q2,” she said.
Shanghai is carrying out Covid tests in several districts this week after detecting new Covid cases, according to a statement on the city’s WeChat account.
Wu also pointed to Bank of America Securities’ so-called “rise and decline indicator,” which measures sentiment based on factors such as investment flows to predict the outlook for Chinese markets.
This indicator is currently in the very bullish zone. During the backtesting, the very bullish zone signaled a 100% chance that the CSI 300 index will rise in the near term, with median returns in the next two to six months among teenagers, she said.
“So we remain positive. We advise investors to take advantage of the rally and view these short-term corrections as buying opportunities,” she said.
Mainland Chinese markets have outperformed major global indices over the past month, but traded lower on Wednesday.
The Shanghai Composite closed down 1.43% on Wednesday, while the Shenzhen Component fell 1.25%. The CSI 300 index, which tracks the biggest stocks listed on the continent, lost 1.46% on the day.
– CNBC’s Evelyn Cheng contributed to this report.