Short-term corrections in the Chinese stock markets could be a buying opportunity for investors, says a strategist from Bank of America Securities.
Winnie Wu, a China strategist at the investment bank, acknowledged that there is still potential volatility from China’s evolving Covid situation, and there could be more bad news going forward if Covid cases pick up or real estate companies default on their debt.
“But you know, in general, looking at the bigger picture, the worst in terms of corporate revenue, the disruption, the Covid cases ̵[ads1]1; they should be behind us already in the second quarter,” she told CNBC’s “Street Signs Asia” on Wednesday.
Wu pointed to recent announcements that 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 hoped the authorities would try to minimize disruption to the daily lives of its citizens.
“Although we are seeing some decline in Covid cases, [and] “We have seen a few more cities start doing this mass testing, … I doubt we will go back to the extended closure that we have been through in the second quarter,” she said.
Shanghai is conducting Covid testing in several districts this week after discovering new Covid cases, it is said in a statement on the city’s WeChat account.
Wu also pointed to Bank of America Securities’ so-called “wax-and-wane indicator” which measures sentiment based on factors such as investment flows to predict the outlook for China’s markets.
This indicator is currently in the highly bullish zone. During backtesting, the highly bullish zone signaled a 100% chance that the CSI 300 index will rise in the short term, with median returns over the next two to six months in their high teens, she said.
“So we are positive. We recommend investors to ride the rally and take these short-term corrections as buying opportunities,” she said.
The mainland China markets have outperformed the major global indices over the past month, but traded lower on Wednesday.
The Shanghai Composite closed 1.43% lower on Wednesday, while the Shenzhen component fell 1.25%. The CSI 300 index, which tracks the largest mainland stocks, fell 1.46% that day.
– CNBC’s Evelyn Cheng contributed to this report.