BlackRock Sees An Opportunity In Chinese Equities Amid Weakness

In Its Global Weekly Commentary, The Investment Giant Considers The Recent Weakness Of The Chinese Market As An Opportunity To Finally Make A Breakthrough

Chinese equities should be the object of a stronger strategic allocation than the one expressed by the superpower's weight in global indices, while the recent market weakness ought to be seen by investors as an opportunity to finally make a breakthrough. Thus, without forgetting that the global market sees the Federal Reserve as openly willing to tolerate expectations of inflation return by merely waiting for them to occur. As a result, the market is now waiting for the incoming data on manufacturing and service activities in developed economies, in order to measure economies' recovery strength.

Overweighting Strategic Exposure: These are the key points of the Global Weekly Commentary from BlackRock Inc.'s BLK BlackRock Investment Institute, which focuses on the analysis of Chinese assets. The recent equity weakness was caused by fears of a monetary and fiscal policy tightening after China-led global economy recovery, thus helping return to normalcy. On a global level, such a picture presents pressures on risk assets, due to the upward movement of U.S. Treasury yields. However, BlackRock believes that any tightening in China will still be moderate, and maintains an overweight strategic exposure compared to benchmarks.

Towards A New, Bipolar Order: BlackRock thinks that a new bipolar order is eventually taking shape and that investors need to maintain exposure to both driving forces of global growth, namely China and the U.S. The former is also still under-represented in global indices, weighing less than 10% on both the MSCI ACWI and the Bloomberg Barclays Global Aggregate Bond Index. BlackRock highlights that the relatively low correlation among Chinese assets, when compared to the rest of the world, offers benefits in terms of diversification, pointing out that Chinese Class A shares in particular have shown a feeble connection with developed market equities.

Excessive Monetary Tightening Is Unlikely: The dynamics of Chinese government bonds also tell a similar story, with yields significantly higher than those of developed markets' government debt. Furthermore, the exit from the pandemic paves the way for a return to strong economic growth, with the latest data indicating that Chinese resilience has been underestimated. Despite this prompting political and monetary authorities to raise their guard, BlackRock does not believe that the current situation will lead to excessive fiscal and monetary tightening. The fact that Beijing has maintained a cautious growth target of above 6% in 2021 also indicates that China focuses more on long-term growth than on maximizing results in the short term.

China Stands Apart From Other Emerging Economies: However, BlackRock keeps exposure to China well separated from other emerging economy markets, and sees a growth driven by high-quality companies, able to benefit from long-term trends, including climate transition. Even tactically, BlackRock prefers Chinese equities and bonds over those of the rest of Asia, with the exception of Japan.

This article originally appeared on Financialounge.com and was translated from Italian to English. It does not represent the opinion of Benzinga and has not been edited. For news coverage in Italian or Spanish, check out Benzinga Italia and Benzinga España.