Fund managers bearish on China amid banking and property concerns

Asian fund managers remain unconvinced about getting back into mainland stocks, which have become among the cheapest globally, amid concerns about a banking crisis and property woes.

According to the latest Bank of America (BofA) survey of global and regional investors, the number of investors with underweight calls had exceeded their opposite camp by nine percentage points in December, the same as in November. That made them the most bearish on the mainland relative to 11 other Asian markets.

Investors would rather stick to a wait-and-see approach or look for opportunities elsewhere than be exposed to mainland stocks, the survey showed, with 62 per cent of them taking that stance.

“Investor interest towards risk assets in China is shockingly low,” BofA strategists, including Ritesh Samadhiya, said in a December 19 report. Investors preferred to stay out rather than be exposed, “given their belief that Chinese households will stay put in a preservation mode”, they added.

The apathy extended beyond the near term, with 74 per cent of the respondents expecting a structural derating of mainland stocks over the long haul, BofA said. Only 19 per cent of money managers predicted stronger growth in China over the next 12 months, falling below the level seen during the market slump in October last year.

Some 254 people overseeing US$691 billion in assets participated in the BofA survey. Some 219 with US$611 billion in assets had participated in the global survey from December 8 to 14, while 140 with US$310 billion responded to the regional survey, the US bank said.

The contrast could not have been more stark from January when some investors were “unabashedly bullish” after Beijing abandoned its zero-Covid policy. The CSI 300 Index has fallen by nearly 15 per cent this year and is set for a record third year of losses. In Hong Kong, the Hang Seng Index is headed for an unprecedented fourth year of slump.

While a large majority of fund managers continued to see more monetary easing in China, that has done little to move the needle. That could reflect pessimism on the ground, given China’s restrained rhetoric to virtually rule out a policy “bazooka” package, Samadhiya wrote.

The economic struggles had made shorting mainland stocks the second-most crowded trades among fund managers this year, trailing only to the bullish bets on the “Magnificent Seven” or US tech mega caps, the bank said in a separate report.

Nearly a third of global investors now saw the property sector as the most likely source of a systemic credit event, replacing US commercial real estate, BofA said.