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«Chances are that people not going to make big bets on China. Foreign investors are still going to wait and watch in terms of how policymaking changes or how it’s going to adapt,» said Julius Baer’s Asia chief investment officer Bhaskar Laxminarayan in a roundtable last month. «While the potential in China is undeniably there, from [the perspective of] increased exposure, 2022 will be a consolidation year or a review year.»

«Absolute caution and careful sector selection is the watchword for investors in China,» added Credit Suisse’s APAC chief investment officer John Woods, highlighting the shift in «focus and preference for foreign capital» as an enduring feature for the years ahead. 

China Bulls

Elsewhere, there are still other banks that remain positive on investing in China even in the near term.

Analysts at Nomura are advising investors to «gradually look to rebuild underweight positions in China», adding that there were «increasing signs that recent negativity is abating». 

And HSBC turned overweight on Chinese stocks in October, forecasting that the market had bottomed and would return to growth.

«Looking into 2022, sentiment will be very different,» said HSBC’s chief Asia equity strategist Herald van der Linde in a «Financial Times» report, highlighting the political significance of the Chinese Communist Party's 20th Congress in November as a driver of lower market turbulence. «Normally leaders don’t want things to be very volatile in years like this.»

Policy-Aligned Sectors

Banks that are positive on China are advising investors to steer away from targeted sectors and focus on ones that are aligned with Beijing’s policies. 

UBS, for example, expects mid-teens upside for MSCI China in 2022 with a preference for consumer durables and services from reopening prospects and green tech and renewables from policy support. 

And despite the short-term concerns about the tech sector, the bank believes the long-term story remains intact.

«If investors are thinking about a short-term trade, maybe the volatility is still there and it might not be in their favor,» said Eva Lee, head of Greater China equities at UBS Global Wealth Management’s chief investment office. «[But tech leaders] are not going to lose their market share substantially. The big players will remain as giants in their industries.»