Credit Suisse to 'outperform' on China's equities market

Global financial conglomerate Credit Suisse reiterated on Thursday that it will continue to outperform on China's equities market, thanks to the government's latest strong fiscal support for the economy.

Developments such as efforts by the Chinese government to support economic growth, the continued easing of COVID-19 disruptions in both Shanghai and Beijing, and the potential of a scaling back of tariffs on Chinese imports, have all clearly been a balm for China equities, the Swiss firm noted in its Investment Outlook 2022.

The improving economic momentum, including rebound in trade activities, suggests that the overall earnings sentiment on China equities should stabilize, and eventually improve, the report said.

"A key component of our equities-overweight has been and continues to be China, where the latest moves by the government improve the prospects of a large fiscal support for the economy," according to John Woods, chief investment officer for Asia Pacific at Credit Suisse.

Benefiting not only from the overall growth of China's economy, but also from the global shift to new energy, Credit Suisse expects that its Sustainable China investment theme, which materially outperformed the Chinese market in 2021, will continue to perform well over a multi-year time-frame.

The theme provides a good way to have a well-diversified exposure to the parts of China's economy best linked to the government's decarbonization goals and has – since April 2022 – firmly benefited from the easing of lockdowns and the announcement of a fiscal stimulus plan with a strong sustainability focus, the report added.

Also, Credit Suisse said it will continue to prefer a selective exposure to Asian fixed-income options such as China sovereign bonds, which offer stable fundamentals and an attractive yield premium over their developed market peers, and have demonstrated a good amount of resilience against recent market volatility.

Regarding currencies, the investment bank holds a medium-term USD/CNY outlook that skews higher, namely due to stronger imports from increased policy stimulus, and a return of tourism outflows later in the year.

For now, Credit Suisse sees the currency pair at 6.58 and 6.85 in three and 12 months, respectively.

Investors should not lose faith and it would be "a mistake" to leave markets at this stage, the report said, admitting that both equities and bonds have corrected in the first half of 2022 and even well-diversified portfolios have taken a hit.

The company advised investors to keep diversifying their portfolios.

"It is likely that we will see a rebound in both equities and bonds, once we arrive at the peak in the repricing of expectations," it added.