(Bloomberg) -- Nick Wilcox of hedge fund firm Man Group Plc expects Chinese stocks to extend their rally on continued policy support, defying skeptics who warn the gains will be fleeting.
Beijing’s wide-ranging stimulus announced this week is “really important for China stocks” as “the start of a broader attempt to reverse the deflationary cycle,” said Wilcox, managing director of discretionary equities. “We would expect to see more demand-side easing measures to come through in the future to ensure that the current market recovery can be sustained.”
His optimism stands out in a market wracked with a loss of investor confidence. Even with the Chinese central bank’s rare stimulus blitz, analysts at Morgan Stanley and Goldman Sachs Group Inc. are among those questioning the likelihood of a sustained rally as structural problems including an entrenched property crisis remain unsolved.
Wilcox is pinning his bullish take on the Federal Reserve’s easing, which has opened up more room for the People’s Bank of China to cut interest rates, as well as improving earnings.
“The fact that the cut has happened, and the Fed has been very open that this is the beginning of a cutting cycle and not just a one-off, clearly adds credence to the argument that there’s greater flexibility now for Asian central banks to follow suit and China as well,” he said.
The PBOC on Wednesday lowered the interest rate charged on its one-year policy loans by the most on record. That followed its announcement Tuesday of a stimulus package including more cash for banks, bigger home-buying incentives and plans to consider a stock stabilization fund.
The efforts provided an immediate jolt for stocks, with the onshore benchmark CSI 300 Index shooting up about 6% in the past two days. It remains little changed on the year, however, trailing the double-digit gains in many global markets.
Wilcox says more policy support is on the way, especially by means of social welfare reform. He points in particular at the millions of migrant workers whose spending power can be boosted by financial aid.
“We don’t expect to see one single shot of stimulus here although the news from China earlier in the week has been well received by markets,” he said. “We do expect to see incremental progression that in aggregate will make quite a meaningful difference to domestic consumption and start to arrest this deflationary cycle.”
Expectations for China’s economic stabilization and rate cuts by various central banks have contributed to Wilcox’s favorable view of Asia ex-Japan stocks more broadly. He also cites India continuing to excel on demographic trends as well as improvement in Southeast Asian nations including Indonesia and Malaysia as positive factors.
“Asia ex-Japan equities is an asset class that has been unloved for quite some time now, but I do feel that everything is aligning to begin to change that perception,” said the market veteran, who previously covered global stocks at JPMorgan Asset Management. “We are currently seeing a relatively unique situation in the region whereby all of the main constituent parts — China, India and SEA — have the potential to deliver positive economic growth simultaneously.”
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