Buy the dip in China markets despite Covid concerns: BOFA Securities

Short-term corrections in the Chinese stock markets can be a buying opportunity for investors, says a strategist from Bank of America Securities.

Winnie Wu, a China strategist at the investment bank, acknowledged that there’s still a potential volatility from China’s evolving Covid situation, and there could be more bad news ahead if Covid cases rebound or real estate companies default on their debt.

“But you know, generally speaking, looking at the bigger picture, the worst in terms of corporate earnings, the disruptions, Covid cases — those should be behind us in the second quarter already,” she told CNBC’s “Street Signs Asia” on Wednesday .

Wu pointed to recent announcements such as reduced quarantines for international visitors to China.

“China is sticking to the zero-Covid policy, but we’ve seen some changes,” she said, adding that she hopes the authorities would try to minimize disruption to the daily lives of residents.

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“Even though we are seeing some rebound in Covid cases, [and] we’ve seen a few more cities start to do this mass testing, … I doubt we’ll go back to that extended lockdown like we’ve been through in second quarter,” she said.

Shanghai is conducting Covid testing in several districts this week after detecting new Covid cases, a statement on the city’s WeChat account said.

Wu also pointed to Bank of America Securities’ so-called “wax-and-wane indicator” which measures sentiment based on factors such as investment flows to predict the outlook for China’s markets.

We advise investors to ride on the rally and to take these short-term corrections as buying opportunities.

Winnie Wu

China strategist at Bank of America Securities

That indicator is currently in the very bullish zone. During backtesting, the very bullish zone signaled a 100% chance that the CSI 300 index will rise in the near term, with median returns in the following two to six months in the high teens, she said.

“So we stay positive. We advise investors to ride on the rally and to take these short-term corrections as buying opportunities,” she said.

Mainland China markets have outperformed major global indexes in the past month, but traded lower on Wednesday.

The Shanghai Composite closed 1.43% lower on Wednesday, while the Shenzhen Component fell 1.25%. The CSI 300 index, which tracks the largest mainland-listed stocks, shed 1.46% that day.

— CNBC’s Evelyn Cheng contributed to this report.

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