Blackrock says slowdown has reached a level policymakers can't ignore
Blackrock was out with a note on Monday saying they're shifting to tactically overweight Chinese equities on easing expectations.
"In the context of very small client allocations to Chinese assets, we are dipping our toes in the asset class by shifting our view to a modest overweight," according to BlackRock's 'Investment Institute' strategists, led by former BOC policymaker Jean Boivin and former SNB Chairman Philipp Hildebrand.
They note that Chinese equities have underperformed US peers by more than 30 percentage points this year and they believe the move is overdone, particularly over a 6-12 month horizon.
They highlight that investors currently have extremely small allocations towards China and indicate that 'common prosperity' fears are overdone.
Our strategic view already takes into account that China is unmistakably on a path toward greater state involvement with social and political objectives taking primacy over economic ones - leading to greater risks and the need for a new investment lens. But context is everything: Our allocations to Chinese assets remain orders of magnitude lower than those to developed market assets.
Importantly, they now believe that easing is coming on multiple fronts in the near term. That's something that could lead to a broader improvement in risk assets and commodities in particular.
This call is partly rooted in our expectation for incremental near-term easing via three policy levers - monetary, fiscal and regulatory - with growth slowdown likely having reached a level that policy makers cannot ignore.
