BlackRock Inc. parred its bullish stance on China as COVID-19 lockdowns threatens the nation’s economic growth and after steep declines in local stock prices.
The firms held a “modest overweight” view on Chinese assets attractive valuations made up for the risks, BlackRock Investment Institute strategists including Jean Boivin and Wei Li wrote in a note Monday.
However, the firm is now recommending neutral stance on Chinese stocks and bonds as zero Covid policy of Beijing is taking a toll on the economy.
China’s top leaders warned against questioning its zero-tolerance Covid policy last week, saying the epidemic-control strategy is “scientific and effective,” “determined by the party’s principles” and “can stand the test of history.”
“The rapidly worsening outlook for China’s growth on widespread lockdowns to curtail a Covid spike has changed this,” they wrote.
“Lockdowns are set to curtail economic activity. China’s policy makers have heralded easing to prevent a growth slowdown — but have yet to fully act.”
Concerns over the Chinese economy also lead the yuan plunging more than 1% against the U.S. dollar in China on Monday.
The onshore yuan extended its decline for a fourth day Tuesday, down 0.1% to 6.7388 per dollar, the lowest level since November 2020. On Monday, China’s central bank in its quarterly monetary report repeated a pledge to be proactive in addressing mounting economic pressure and boosting market confidence.
The MSCI China Index lost 28% since the beginning of October, compared with a decline of 11% in MSCI’s global benchmark.
“We see a growing geopolitical concern over Beijing’s ties to Russia,” they wrote. “This means foreign investors could face more pressure to avoid Chinese assets for regulatory or other reasons.”
