(Bloomberg) -- China’s sweeping stimulus measures could drive a broad rotation into stocks outside the US, as well as emerging markets and commodities, according to Bank of America Corp. strategists.
“Unloved commodities — industrial metals, materials and international stocks” are the “best rotation breadth plays,” so long as the steps announced by Beijing keep the new floor for China’s 10-year yields at 2%, the team led by Michael Hartnett wrote in a note on Friday.
Total stimulus could reach $560 billion, equivalent to more than 3% of China’s GDP, the strategists said. At the same time, investors are the most underweight on commodities since June 2017, China equities are near a 50-year low versus their US peers, and Chinese property stocks are at levels last seen during the global financial crisis.
Among the measures this week, China’s central bank announced a cut to the amount of cash banks must keep in reserve and a key policy-rate reduction. The nation’s leaders also ramped up efforts to revive growth with pledges to support fiscal spending and stabilize the beleaguered property sector.
Mainland and Hong Kong-listed shares have soared. The CSI 300 Index rose 4.5% on Friday, making the week’s 16% gain the most since 2008. Other assets exposed to to the Chinese economy jumped, including commodities such as iron ore, as well as European mining and luxury stocks, which are highly dependent on Chinese demand.
Barclays Plc strategists led by Kaanhari Singh reiterated their preference for China over India.
“Ever since the disappointment of the China reopening rally in November 2022, it has paid to fade market hopes of a sustainable China turnaround,” they said. “But we now think China is serious about tackling its structural issues. This could be big.”
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