CHINESE equities are expected to be supported by corporate earnings recovery in the second half of 2024 as macroeconomic conditions recover, the Bank of Singapore (BOS) said in its outlook for H2 on Tuesday (Jul 9).
Corporate earnings started showing signs of positive earnings revision momentum since May, with MSCI China’s expected 2024 earnings per share having been lifted by 1.1 per cent, said Louisa Fok, Bank of Singapore’s China equity strategist.
The MSCI China Index tracks large and mid-cap equities across China, covering about 85 per cent of the market.
The return-on-equity gap between China and emerging markets has closed over the past 12 months despite macro-economic concerns, Fok noted.
In the first half of 2024, the index rose 4 per cent, experiencing a run-up before correcting 10 per cent from its peak in May on the back of mixed macroeconomic data, which included lingering concerns on the turnaround of the property sector and subdued consumption in China.
“Going into H2 2024, we expect Chinese equities to be supported by corporate earnings recovery, mainly driven by Internet and platform companies, a gradual but bumpy recovery in macro data, improving real estate transactions, the upcoming high-level government events (i.e. the Third Plenum and the July Politburo meeting), and increasing focus on shareholders’ return,” Fok said.
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She added: “We believe there should (be) room for the market to catch up with performance on the back of continued government policy support and increasing focus on return to shareholders through dividends and share buybacks.”
In the report, Fok noted that the bank is “less cautious” on the financial sector amid lessened net interest margin concerns, but is turning “more cautious” on consumer staples on the back of margin pressure.
“We advocate a barbell strategy focusing on quality dividend yields and earnings growth delivery, including AI plays and market leaders. In addition, subject to the update at the Third Plenum, we believe investors could also focus on potential reform beneficiaries,” Fok said.
Offshore Chinese equities are preferred in the near term given their sizeable exposure to Internet and platform companies, which have a solid earnings momentum and large caps have been actively buying back shares, Fok said.
The offshore Chinese equities market could benefit from a potential US rate cut later this year, but currency risks and geopolitical tensions ahead of the presidential election remain, she wrote.
