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Buy the plunge in Chinese markets despite Covid concerns: BOFA Securities

Short-term corrections in China’s stock markets could be a buying opportunity for investors, says a Bank of America Securities strategist.

Winnie Wu, a China strategist at the investment bank, acknowledged that the evolving Covid situation in China still poses potential volatility and there could be more bad news if Covid cases recover or real estate companies defaulted on their debts.

“But you know, in general, if you look at the bigger picture, the worst in terms of corporate earnings, the disruptions, Covid cases — that should be behind us as early as the second quarter,” she told CNBC’s Street Signs Asia on Wednesday. . .

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

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

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“Although we are seeing some recovery in Covid cases, [and] We’ve seen a few more cities start those mass tests… I doubt we’ll go back to that extended lockdown like we went through in the second quarter,” she said.

Shanghai is conducting Covid tests in several districts this week after new Covid cases were detected, the city’s WeChat account said in a statement.

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 the rally and use these short-term corrections as a buying opportunity.

Winnie Wu

China strategist at Bank of America Securities

This indicator is currently in the very bullish zone. During backtesting, signaled the very bullish zone a 100 percent chance that the CSI 300 index will rise in the short term, with median returns in the high teens over the next two to six months, she said.

“That’s why we remain positive. We advise investors to ride the rally and use these short-term corrections as buying opportunities,” she said.

Markets in mainland China outperformed major global indices last 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 stocks listed on the Mainland, fell 1.46% on the day.

— CNBC’s Evelyn Cheng contributed to this report.