(Bloomberg) -- Allianz Global Investors says China will lift its Covid-Zero policy in the near term, contrary to the government’s oft-stated goals, driving a reopening trade that will revive markets.
Anthony Wong, lead manager for the $1.2 billion All China Equity Fund, said it’s time to buy shares in the tourism and leisure sectors, such as duty-free shops and hotel chains. They’re among the biggest overweights in his portfolios, alongside renewable energy, electric vehicle supply chain and health care, which he expects to benefit from the nation’s structural growth trends.
“It is still a contrarian call at this point because market expectation on reopening is coming down,” Wong said in Hong Kong. “But we do believe that it is going to happen eventually, and hopefully within the next six months. And as usual, equities will move faster than fundamentals because of investor expectations.”
Wong’s views stand in contrast to a chorus of investors who expect China’s Covid-Zero strategy to remain in place as President Xi Jinping tightened his grip on the nation’s leadership after a key meeting. Chinese stocks tumbled on Monday, taking the year’s decline to 26% in the CSI 300 Index, with traders concerned that less market-friendly policies will dominate in the years ahead.
China’s Covid-Zero policy and worsening property crisis crimped economic growth, while investors fret over ongoing tensions with the US.
Read: China Debating Cut to Covid Quarantine for Inbound Travelers
The gradual lifting of Covid restrictions in Hong Kong and Macau are signs that China could also follow suit, Wong said in an interview last week. He reaffirmed his views on Monday after the party congress.
His view echoes that of Bank of America Corp. whose economists including Helen Qiao said the government may relax Covid restrictions “sooner than the market expects,” as the top leadership get on with its policy agenda with the key Party Congress over. JPMorgan Chase & Co.’s strategist Marko Kolanovic also cited China’s “gradual COVID reopening” as a reason that investors should buy the dip.
Wong’s flagship China fund is down 37% this year and is headed for a second year in the red, according to data compiled by Bloomberg. He said the past year was “challenging” given that investors tend to trade on news and rumors about policy changes instead of fundamentals.
But with the macro situation stabilizing, “we do expect investor focus to go back to the fundamental outlook of companies, and the quality growth names will start to regain momentum and outperform again,” he said. The A-share market, as equities traded in China are known as, is best positioned to capture those opportunities because of its breadth of new-economy names and relative immunity to external volatility, he said.
Wong also believes some of China’s tech behemoths are becoming more attractive given their cheap valuations and more regulatory clarity. His funds have reduced underweight positions in the sector since the second half of this year, snapping up hardware names that may benefit from the nation’s pursuit of self-sufficiency.
Despite ongoing criticism of China’s outlook, he said its markets are still investable on a long-term horizon.
“If you’re able to stick with a structural-growth market like China, not worrying about the near-term volatility, not selling your positions at a low point, then you’ll still be able to make a decent profit,” Wong said.
READ: JPMorgan’s Bullish Stock Call Is Backed by History: China Today
(Updates with JPMorgan’s view in seventh paragraph)
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