Fidelity, Invesco Prep For Revival In China’s Beaten-Up Markets

Six months after abandoning a hot China recovery trade, Taosha Wang is poised to dive back in.

Encouraged by clear growth support signals from Beijing, increased stimulus for embattled developers and attractive equity valuations, the portfolio manager for Fidelity International is scouring for opportunities again.

“We are looking to increase our exposure in a measured manner,” Wang, who helps manage the $1.5 billion Global Thematic Opportunities Fund, said in an interview. “It has become clearer to investors that economic growth is once again firmly a policy priority.”

Wang is among a growing band of global fund managers who are calling time on this year’s relentless selloff in Chinese assets, which has seen $1.6 trillion wiped off mainland stocks since early February. The excessive pessimism that hammered everything from stocks and the yuan to corporate bonds has run its course, they say, paving the way for a market turnaround as policymakers finally take firmer action to revive the economy.

Recent gains in asset prices have emboldened such views. The yuan is headed for its best month of the year after rebounding from a 16-year low against the dollar while a Bloomberg gauge of Chinese investment grade credit is at its highest in 20 months. The Hang Seng China Enterprises Index is set for the smallest monthly drop since July.

Bullish sentiment is creeping back in, without the euphoria that swept Wall Street a year ago. China’s Covid reopening rally at the end of 2022 flopped in just three months, handing investors a pricey lesson on the unpredictability of markets once considered a core part of any global portfolio. 

For much of the year, Chinese stocks were among the world’s worst performers. Investors were withdrawing money out of the country at the fastest pace since 2015, with JPMorgan Chase & Co. saying many no longer consider China a mainstream holding. A yearslong real-estate crisis, regulatory crackdowns and the nation’s rift with the US had led to a re-evaluation of its long-term growth prospects.

But one by one, money managers are sensing a turn in the tide.

Support for the property sector is getting more forceful with the aim of easing developers’ funding woes, while consumption to corporate earnings show the worst for the world’s second-largest economy has passed. And with the yuan facing tailwinds from a weakening dollar, bulls believe the market is at an inflection point.  

The latest Bank of America global fund manager survey shows less concern over China’s real-estate crisis. Despite this, betting against Chinese stocks remains the second-most crowded trade — a mismatch some investors are now looking to exploit.