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JPMorgan China Fund Raises Bet on Tech as Bullish Calls Grow

JPMorgan China Fund Raises Bet on Tech as Bullish Calls Grow

(Bloomberg) — JPMorgan Asset Management is doubling down on China’s tech stocks after a tumultuous sell-off, betting that easing regulatory action and attractive valuations will pay off well.

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Rebecca Jiang, who co-manages three China equity funds with nearly $20 billion in assets, said she is becoming more optimistic on the sector as regulatory hurdles are being eased, while macro policies provide support. According to filings as of late May, the flagship China fund has rallied shares of Alibaba Group Holding Ltd and JD.com Inc this year.

“A clearer and more defined regulatory framework around these Internet businesses is a definite positive,” Jiang said in an interview in Hong Kong this week. “The worst is over,” he said, adding that the firm has kept most of its China tech holdings over the course of a year because the sector provides “significant value” to clients.

His views echo a growing trend in the China market, where investors are turning back to tech stocks after a year of heavy selling that wiped out nearly $2 trillion at the height of the route. And with Chinese authorities in full force in their efforts to revive the economy, the country’s stocks have drawn buyers, even as major indices around the world plunged into bear markets.

China’s benchmark CSI 300 index has gained over 5% in the past month, while the S&P 500 index has fallen nearly as much and the MSCI gauge of global stocks is down nearly 6%. Meanwhile, the Hang Seng index of Chinese tech stocks rose over 10%, as officials indicated a more liberal stance towards the sector.

Better performance in Chinese stocks is driven by loose monetary and fiscal policy settings, even as global central banks led by the Federal Reserve rush to raise interest rates to stave off red-hot inflation. China’s policymaking was again exposed as President Xi Jinping pledged to meet economic targets for the year in a keynote speech at a virtual BRICS business forum on Wednesday.

From strategists at Morgan Stanley to Jefferies Financial Group, the intoxication of bullish China rhetoric is increasing by the day, with Deutsche Bank AG saying on Wednesday that it expects to upgrade its outlook on the market in the coming months. More fiscal stimulus is likely before President Xi Jinping secures a third term later this year, according to wealth managers at the German lender’s private banking arm.

READ: China Shares Trapped the S&P 500 as Deutsche Bank Wins Their Fans

Certainly, betting on big tech has done damage. Jiang’s China Fund fell 20% last year, falling in the rankings after finishing in the top 5% among its peers in 2020. Although still down around 20% this year, its recent returns are starting to turn positive.

Read: China Bulls Got It Wrong As Covid Zero Stages, Says Lombard

“Development strategies have experienced a difficult period,” Jiang said. “But the regulatory headwind and tightness could be a blessing in disguise for many of these Internet companies. I think it helped investors identify and appreciate their true value.”

Moving forward, Jiang said she is looking at opportunities in other beaten-down areas such as property, as well as policy beneficiaries, including infrastructure and new energy.

Regulations on the property sector “could accelerate market consolidation and market share gains, especially for major state-owned developers that are run more conservatively,” she said, adding that fund allocation in the sector is increasing.

According to Jiang, with the gradual easing of COVID restrictions, continued monetary and fiscal support, Chinese stocks will continue to outperform global peers for the rest of the year.

“From a global asset allocation perspective or on a standalone basis, the Chinese asset, equities we are talking about here, looks attractive, especially from the level it has fallen.”

(update throughout)

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