Goldman, UBS join bullish bets on global assets as China reopens

Global markets got a sugar rush when China reverted to pro-growth policies in late 2022, and some are arguing it’s not too late to join the rally.

Chinese equities stand to gain another 20%, oil could renew its push past $100 and copper may breach $10,000 as consumption revives in the world’s no. 2 economy. Those are just a few of the forecasts from strategists and money managers, with emerging-market stocks and selected Asian currencies also likely to benefit. 

The resumption of activity in China promises to unleash over $836 billion of excess savings, and may help ease fears of a global downturn as other central banks continue to tighten policy. But even so, skeptics caution that a hawkish Federal Reserve will still be the dominant theme for financial markets and the world economy.

“We are in the early phase of recovery in terms of asset prices,” said Paras Anand, London-based chief investment officer at Artemis Investment Management LLP. “A recovery or normalization of the Chinese economy will be positive for global growth at the margin.”

Selective on Stocks

Chinese shares may beat their global peers in 2023, with Morgan Stanley and Goldman Sachs Group Inc. forecasting the MSCI China Index will gain roughly 10% more while Citi Global Wealth Investments sees about 20% upside. 

“This time round the recovery is going to be services- and consumption-led,” rather than investment, which helps local equities more than other economies, said Fidelity International’s George Efstathopoulos. 

Yet others see Asian equities extending gains, even after a benchmark entered a bull market. Exporters such as South Korea and Taiwan will benefit, as well as Southeast Asian economies which rely on Chinese tourists, notably Thailand. BNP Paribas SA predicts the MSCI Emerging Markets Index will rise to 1,110 through year-end.

Deutsche Bank Sees Asia Stocks Rising 20% in 2023 as Woes Ease

Commodity Choices

Brent crude could average more than $100 a barrel this year as China, the world’s largest oil importer, dismantles Covid curbs, according to ING Groep NV analysts. Similarly, the nation’s voracious appetite for copper augurs well for the commodity, with Goldman Sachs forecasting that it will top $10,000 a ton before end-December.

The reopening will make investors “think twice” about shorting oil despite the demand backdrop in the West, said Louis Luo, an investment director in abrdn plc’s multi-asset team.

Iron ore is also poised to benefit although gains may be tempered by China’s crackdown on surging prices.

Steel and iron have rallied since the lows reached in October and have “priced in the construction rebound that’s likely to occur,” said David Chao, a global market strategist for Asia Pacific ex-Japan at Invesco Hong Kong Ltd.

Commodity shipments from Indonesia, Thailand and Vietnam are also on the radar after Southeast Asia replaced the European Union as China’s top trading partner in 2020, according to HSBC Holdings Plc.

Currencies Boost

The onshore yuan has gained about 7% since China started rolling back virus curbs in November. It could climb to 6.50 per dollar this year from around 6.72 now as economic growth rises above trend into the second half, according to UBS Global Wealth Management.

A 60-day correlation gauge between the yuan and emerging-market currencies has risen to 0.70, the highest in five months. The reopening could be especially lucrative for Thailand’s baht and the South Korean won, both beneficiaries of Chinese tourism. The Chilean peso will also climb amid rising Chinese demand for copper.

“We think this is a real turning point for the Chinese economy, its underlying assets, and the broader emerging market universe,” Alan Wilson, money manager at Eurizon SLJ Capital, wrote in a Jan. 6 note. –BLOOMBERG