Unloved for years since the Covid-19 pandemic ended in late 2022, Chinese stocks are being hailed as “attractive” and “compelling” bets even after a US$4.5 trillion rally in Shanghai, Shenzhen, Hong Kong and New York over the past one month.

China put a floor under stock and home prices on September 24, when it delivered a surprise stimulus package to stop the rot in both markets. Since then, the CSI 300 Index of onshore stocks has risen 23 per cent, while the Hang Seng Index surged 12 per cent. The Nasdaq Golden Dragon Index has advanced 18 per cent. The bull run may hasten bigger fund inflows, Goldman Sachs said.

At risk is Beijing’s policy credibility, according to UK fund manager Abrdn. A lack of details on what goodies might be coming could sour the narrative, BlackRock said. The onus is on the standing committee of China’s legislature to live up to heightened expectations when it meets later this month or next month.

Here are some takeaways on the outlook for Chinese stocks by some global fund managers and investment banks.

BlackRock: China is the latest example of how cheap valuations can turn into a stock market rally once a catalyst emerges, the New York-based money manager said in a report. China’s stimulus signal prompted the firm to go “modestly overweight” especially given depressed valuations.

“Chinese shares have surged since the September Politburo meeting on hopes that major fiscal stimulus may be on the way,” strategists at BlackRock Institute led by Wei Li wrote on October 14. “A lack of details so far has disappointed some investors, so we eye policy announcements for more clarity.

“Details have been scant, so we could change our view if future announcements disappoint. We still think China faces long-term, structural challenges, like economic and geopolitical competition with the West, government debt and population ageing.”

Morgan Stanley: The commitment to “ample” fiscal deficit expansion should help stabilise market sentiment in the near term after the huge volatility since late September, the US investment bank said in a report on October 13.

“We do not expect fund flows or active fund positioning to retreat all the way back to pre-September 24 levels, as the signal of a policy pivot was clear despite a lack of details,” analysts including Laura Wang said. “Further fiscal measures are likely to come only incrementally during the course of 2025.”

The potential trough for corporate earnings growth remains unclear, therefore, the focus on earnings visibility and quality “should remain popular,” they added.

Goldman Sachs: The historic 30 per cent rally in two weeks has proven to China-focused investors that going short the “policy put” and running significant tracking errors in Chinese equities could be costly, especially when valuations are undemanding and positioning is light, it said.

The bull run may accelerate the long-awaited asset allocation flows into equities for Chinese institutional and retail investors, according to strategists including Kinger Lau in Hong Kong.

These investors are currently underweight on stocks relative to other financial and real assets, and would add more equities to their portfolio, they added.

Beijing’s strategic priority of developing the stock market might have risen, amid the persistent pressures in the housing market, they said. The stock market not only acts as a financing vehicle for the economy but is also a growth driver for services and consumption via the confidence and wealth effect.

UBS: After the post-stimulus rally, some of the value in China equities has evaporated. Still, the bigger thrust of the arguments behind the China-overweight call remains unchanged, it said in a report on October 15.

China used to command an 18-20 per cent premium to the rest of emerging markets. Now, the market trades at a 35 to 40 per cent discount in terms of price to earnings and book value. The underperformance over the past two years was due to a lack of support from domestic investors, not foreign funds or weak company fundamentals.

“Anecdotes of heightened retail brokerage account activity over the past few weeks and rising retail volumes in trade point to some pickup on this metric,” it added.

The policy direction is positive, even if the speed is slow, UBS said. Monetary policy has already prompted action, with a further promise of easing. Fiscal policy intentions have been clarified. These should help put a floor on earnings.

Abrdn: “Since the September 24 announcement, it has become clear that a policy shift is under way,” Nicholas Yeo, head of China equities, said on October 14. “This momentum is expected to continue in the coming weeks.”

More fiscal measures and potential structural reforms in 2025 are likely, as the absence of further stimulus could undermine China’s policy credibility. The effectiveness of these policies remains to be seen, with a probable lag in the recovery of economic and earnings growth, it added.

“Following such rapid re-ratings, markets do tend to pull back,” it said. “However, the margin for error in China remains attractive, valuations still reasonable, along with very washed-out positioning.”

Backed by earnings growth, the opportunity to accumulate high-quality Chinese assets remains very compelling, Yeo said. Many leading companies are trading at attractive discounts, and “our focus is on those high-quality companies that are gaining market share, offering good earnings visibility and yields and dividends,” he added.

JPMorgan Asset Management: Following the recent rebound, stock market valuations have returned to a level in line with current economic fundamentals and corporate earnings, it said. The sustainability of market recovery depends on the pace of economic and earnings recovery.

Fiscal stimulus is crucial for lifting the economy out of the deflationary cycle. Tax cuts and social welfare expenditures may be more important for improving people’s disposable income and consumption power, it added.

“We might have to wait until late October or early November for concrete plans from the standing committee meeting of the NPC,” it said. “Furthermore, the US election could introduce more uncertainties and Chinese policymakers might adjust the stimulus plan accordingly.”

Daiwa Securities: “By connecting the dots of high-profile meetings over the past three weeks, we can sense policymakers’ determination to promote a sustainable stock market recovery, but at a more controllable pace.”

“This is likely to put a cap and a floor on the CSI 300 Index and Hang Seng Index in the short term. “It is a good timing for early investors to selectively reduce some of their China stock positions. We see some tactical opportunities for ‘swing trades’ over the next two to three weeks.”

Man Group: “We are at the definitive turning point in China’s attempts to reverse the cycle of deflation,” the hedge-fund manager said. “Beijing will no doubt march to its own tune in terms of the timing and communication, but we remain convinced that further stimulus will be forthcoming, and with it a sustained recovery in China’s economic outlook.”

The raft of announcements in recent weeks will allow the private sector to do the heavy lifting, although implicitly backstopped by the central government, it said. There is less constrained on monetary easing, given currency stability and bank profitability.

“We have already seen signs that forward earnings have stopped falling, which has not been reflected by market levels.”