On Monday (December 5), the Shanghai stock index opened higher and moved higher throughout the day, rising 1.76% to stand at 3200 points.

Trust and insurance and other major financial sectors and individual stocks with a Chinese prefix broke out collectively, and the airport and shipping sector rebounded strongly.

The turnover of the two cities once again exceeded 1 trillion yuan, and the net purchase of northbound funds throughout the day was 5.9 billion yuan. In the past 5 days, the cumulative increase in foreign capital positions exceeded 36 billion yuan.

  With the continuous improvement of the epidemic prevention situation, the frequent introduction of real estate support policies, and the weakening of the strong dollar, "buy China" has gradually become the consensus of more international institutions.

On December 5, the renminbi was on a tear, and the intraday increase approached 1,000 points after the market opened.

As of 19:50 Beijing time on the same day, USD/CNH was at 6.9428, which was close to 6.93 that day.

  "This year, the exchange rate forecasts of many foreign-funded institutions have not expected the change of the current situation. Many institutions even set the forecast point of RMB against the US dollar at 7.5 and 7.8, but now they are all starting to adjust." A European foreign-funded bank Foreign exchange strategists told reporters.

  More well-known international institutions have joined the camp of "overweighting China's stock market".

On December 5, a reporter from China Business News learned that on December 4, Morgan Stanley officially "turned over" and raised the Chinese stock market from "equalweight" to "overweight".

Despite the bumpy road to recovery, multiple positive signals have led the agency to officially join the ranks of "overweight".

Prior to this, well-known international investment banks such as Goldman Sachs and JPMorgan Chase expressed that they were overweight the Chinese stock market.

The RMB enters the 6.9 range

  China Business News reported on December 4 that there is a high probability that the renminbi may "reversely break 7" in the near future, and many foreign-funded institutions have begun to raise the forecast point of the renminbi exchange rate.

Opening on December 5, both the onshore renminbi and the offshore renminbi rose above the integer mark of 7.

  UBS recently told reporters that the 20 optimized epidemic prevention and control measures announced by the National Health and Medical Commission in mid-November are good for the growth prospects of Chinese assets.

Since the policy adjustment (as of November 20), we estimate that about US$2.06 billion has flowed into Chinese portfolios.

The agency recently raised its RMB forecast, "a package of policies will help reduce the tail risk of China's economy, and also support our view that economic activities will improve from the second quarter of next year. Therefore, we have recently raised the RMB forecast for March, June, September and December next year. to 7.3, 7.1, 7 and 6.9."

  “As uncertainties remain, we expect RMB volatility to remain high in the near term. China is shifting to a more dynamic and flexible epidemic prevention strategy, and we see signs of a strategy shift from 'containing the epidemic' to 'flattening the curve'. This reduces the risk of weaker economic growth and should support risky assets. If the dollar continues to weaken, the possibility of the dollar/renminbi testing the 6.80-6.90 range cannot be ruled out," Zhang Meng, a macro and foreign exchange strategist at Barclays, told reporters.

  It is worth mentioning that the reporter also learned that due to the uncertainty still exists, more traders started to buy more Korean won than long RMB, because the Korean won has a high correlation with China's trade and RMB exchange rate, and the Korean won The Korean won is a good "proxy indicator" of the RMB trend because of its relatively high elasticity.

The South Korean won has rebounded nearly 11% against the U.S. dollar in the past one and a half months, and the RMB has appreciated nearly 5% against the U.S. dollar during the same period.

  On November 2, the offshore RMB once fell to around 7.37.

However, since November, under the expectation that the Federal Reserve will slow down interest rate hikes, U.S. stocks have rebounded sharply. The S&P 500 has climbed from the range of 3,500 to around 4,070, breaking through the key 200-day moving average in one fell swoop, and it seems that it will continue to usher in a "Christmas rebound."

At the same time, the U.S. dollar index also retreated from 115 to 104.4, and the 10-year U.S. Treasury yield fell from above 4% to below 3.6%.

  However, the recent rebound of the renminbi has obviously exceeded the expectations of major institutions, which is also related to the speed of epidemic prevention policy adjustments, and the speed and intensity of real estate support policies that have exceeded expectations.

  On November 28, the China Securities Regulatory Commission issued a number of measures related to the financing of the capital market of real estate companies, including "resuming mergers and acquisitions and supporting financing of listed companies related to real estate", "resuming refinancing of listed real estate companies and listed companies related to real estate", "adjustment and improvement Listing Policy of Real Estate Enterprises in Overseas Markets", etc.

  Zhang Renyuan, an analyst at S&P Credit Ratings, previously told reporters, “These policies and measures introduced recently clearly reflect the attitude of the regulators to ensure both delivery and high-quality enterprises. Introduced under the keynote framework, the intention is to give high-quality real estate companies more room to maneuver funds while the sales of the industry remain at a low level, and to help companies realize "time for space". According to the above measures, the use of funds raised by companies involved in addition to Guaranteed delivery can also include replenishing working capital and repaying existing debts to improve the balance sheet, but it cannot be used for land auctions and new real estate development.”

  "While we are hopeful, the path to reopening is likely to be gradual," Lu Ting, chief China economist at Nomura, told reporters.

"Buy China" has become a consensus

  China Business News recently reported that institutions such as Goldman Sachs, JPMorgan Chase, and UBS all maintain an overweight view of A-shares. At present, more institutions have joined the "buy China" camp.

  On December 4, Morgan Stanley also officially "turned more."

Since January 2021, Morgan Stanley has always maintained a standard view on the MSCI China Index, and has now adjusted it to an overweight (compared to the MSCI Emerging Markets Index, an overweight of 50 basis points).

"Since we upgraded Asia/emerging market stocks to overweight on October 4, we have also become more positive on the Chinese market, and believe that the path to reopening has been determined on November 11 (further optimization of prevention and control 20 measures for work are released).

  Wang Ying, chief equity strategist at Morgan Stanley China, said that the current basic assumption is that we are standing at the starting point of a stage of earnings recovery and valuation repair that will last for multiple quarters, and ROE (return on equity) will improve.

"Currently, with the end of the mid-term elections in the United States, the geopolitical situation will also enter a relatively calm stage, and the cost of equity and equity risk premium will gradually decline. This should all help investors reinvest in Chinese stocks. The consumer sector is As a beneficiary of the reopening of the economy, we further increase our exposure to the sector and continue to recommend an increased allocation to offshore Chinese equities."

  It is worth mentioning that earlier, Morgan Stanley preferred A-shares to the offshore Chinese market (Hong Kong stocks, Chinese concept stocks), because A-shares have better liquidity and are more able to benefit from the support of loose policies.

But at present, the agency has canceled its long-term preference for A shares, and also holds an overweight view on the offshore Chinese market and A shares.

  Morgan Stanley believes that recent events that may trigger market fluctuations that need attention include-the US Public Company Accounting Oversight Board (PCAOB)’s audit inspection of Chinese concept stocks may send out positive news; US Secretary of State Blinken’s visit to China; 12 The Politburo meeting in May and the Central Economic Work Conference may give a clearer path to deal with the epidemic and the macro-growth target for 2023; further changes will be made in the way the epidemic is managed, and the focus will be on communication, vaccination, mortality and hospitalization .

  On the contrary, the agency's chief U.S. stock strategist Michael Wilson "flipped" U.S. stocks on the same day.

He successfully predicted the sharp rebound of this wave of US stocks starting in November, but the agency believes that the current risk-return is not attractive, and recommends that the investment portfolio remain defensive, and deploy defensive sectors such as healthcare and utilities.

The mainstream view predicts that the Fed will continue to raise interest rates to more than 5%.

  In addition, institutions such as JPMorgan Chase, Goldman Sachs, and UBS held an overweight view on China's stock market earlier.

In addition to low valuations, China is the only major economy in the world that still has the potential to "restart the economy" after the epidemic.

Since the beginning of this year, Goldman Sachs has maintained an overweight allocation of A shares and Hong Kong stocks.

On the contrary, for the Southeast Asian stock market, which is highly sought after by international investors in 2022, Goldman Sachs has now adjusted its underweight allocation, and many institutions believe that India's valuation is already too expensive.

  Liu Jinjin, chief China equity strategist at Goldman Sachs, told reporters a few days ago that whether it is an active investor or a hedging investor, the positions in the Chinese stock market have been low before, and there is limited room for further reduction.

At the same time, the repurchase volume of many companies has been at a high level recently (including A shares, Hong Kong stocks, and ADRs). After a long period of sharp decline, many companies believe that the valuation is already very low, which is a very good opportunity for repurchase.

  Goldman Sachs predicts that by the end of next year, the MSCI China Index will rise to 70 points, and the CSI 300 will rise to 4,500 points, a 16% upside potential from the current level.

In addition, Goldman Sachs raised the real estate sector from underweight to neutral. With the launch of the real estate "three arrows" support policy, the tail risk of real estate has been greatly reduced after the introduction of the policy.

However, in the medium and long term, Goldman Sachs is more optimistic about specialized and special new "little giants". Enterprises with profitable growth, better corporate governance, and high R&D investment are highly valued by medium and long-term overseas investors.

  Liu Mingdi, chief Asia and China equity strategist at JPMorgan Chase, predicted in a recent report that from now to the end of 2023, the MSCI China Index has a 10% upside potential, and earnings per share by the end of 2023 will generally increase by 14%, which will make the MSCI The index returns to the level around August 2022.

She also told reporters that in December, the Central Economic Work Conference may make recommendations on possible fiscal and monetary coordination in 2023.

  Meng Lei, a China equity strategist at UBS Securities, told reporters, "Under the baseline scenario, we assume that the epidemic prevention situation will improve after the 'two sessions' in March next year. We expect economic recovery and downstream profit margins to improve. EPS growth jumps from 4% in 2022 to 15% in 2023."

  He said that the current static price-earnings ratio of the CSI 300 Index is 11.3 times, 1.2 standard deviations below the five-year average, and close to the lows in 2016 and 2018.

"Since the earnings of A-shares have still recorded positive growth so far this year, and onshore residual liquidity and credit pulses have shown a recovery trend, we believe that such a low valuation level is unreasonable. If our baseline scenario outlook for next year becomes a reality , the valuation of the A-share market is expected to rebound. The current high equity risk premium should also fall as the state’s policy support for the private economy increases.”

  UBS said that it is currently most optimistic about A-shares, and recommends that investors focus on the following investment themes in 2023-improvement of the epidemic prevention situation to promote a comprehensive recovery of consumption; independent control and import substitution in the context of national security; sustainable growth prospects and valuation Track stocks with low value; high dividend yield stocks as part of a defensive position.