There are still signs of weak economic sentiments within China, according to Julius Baer, which is not yet ready to turn bullish on the country's markets.
One major potential tailwind on the side of Chinese equities has been the gargantuan household savings, including a 9.9 trillion yuan ($1.4 trillion) increase in the first quarter of 2023, which could help boost markets even in the event of limited government stimulus.
Despite this, household loans are decreasing and, according to Julius Baer, this is a sign of weak sentiments on the ground.
«[Chinese households] are saving more and borrowing less which is a sign, some would say, of a lack of confidence in the economy,» said Julius Baer APAC head of research Mark Matthews.
Neutral Rating
To this end, the bank is maintaining its neutral rating on China and continues to advocate a stock-picking strategy. Although it is forecasting a positive return for the overall China index, it expects range-bound performance until markets receive more clarity on improving fundamentals and geopolitics.
«So as cheap as the stocks are there, we don’t have the confidence in China to recommend them to people yet,» Matthews added.
In the broader Asia region, Julius Baer is still overweight on India due to favorable economic policies and a private sector composition that supports long-term structural growth. It also believes there is still value in Japan as a diversification opportunity with both quality and growth characteristics but without geopolitical turmoil.
