Credit Suisse Group AG’s global investment committee upgraded its stocks allocation to overweight just three months after cutting it, and said it sees Chinese equities offering “attractive upside potential” after a record rout.
The committee raised US stocks to overweight, citing resilience in the face of risks surrounding Russia’s invasion of Ukraine. Credit Suisse also increased exposure to Chinese equities, citing low valuations and supportive economic and regulatory policies.
Chinese stocks have slumped in recent weeks on Beijing’s close ties to Russia, regulatory headwinds and a zero-tolerance Covid-19 policy, before rebounding in the past few days on the nation’s strong push to stabilize financial markets. On Monday, the valuation of the tech-heavy Nasdaq Golden Dragon Index dropped to 13.6 times forward earnings, a far cry from about 41 times in June 2021, just when Beijing had started lashing Internet companies.
Back in December, Credit Suisse had downgraded global stocks to neutral as rate hike fears gripped US financial markets and the omicron variant was spreading quickly, leading to lockdowns. The selloff in equities gathered pace in 2022 as Russia invaded Ukraine, causing many global stock indexes to tip into bear markets.
However, the sentiment toward risk assets has been improving over the past week on the optimism that peace negotiations between Russia and Ukraine are progressing and as the Federal Reserve reassured investors that economic growth will continue. The Nasdaq 100 Index rallied 3.7% Wednesday, further distancing itself from bear market territory it touched earlier this month.
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“The positive market reaction to the FOMC’s deliberations suggests that markets have had enough time to digest the changed economic outlook,” committee members led by Michael Strobaek wrote in a note Thursday. “Although we would stress the still high uncertainty with regard to developments in Ukraine, we note that glimmers of hope have surfaced.”
As an additional positive factor, Credit Suisse cited the recent drop in commodities prices that surged after Russia invaded Ukraine, which reduces the risk of a stagflationary shock.
Photo: Bloomberg
