(Bloomberg) -- HSBC Holdings Plc has upgraded mainland Chinese stocks to overweight from neutral, after authorities delivered a policy boost which renders the market more attractive from a risk-reward perspective.
It’s “not too late to enter the rally” as valuations remain attractive while investor positioning is light, strategist Alastair Pinder wrote in a note on Thursday. The brokerage’s model suggests that mainland Chinese equities are still “15% undervalued based on fundamentals.”
The upgrade follows a similar move by BlackRock Inc. this week as expectations grow that the rally in China’s stocks may have room to run. The onshore benchmark gauge has rallied 27% from a recent low in September after Beijing unveiled a slew of stimulus measures to revive economic growth.
Investors are currently underweight mainland Chinese stocks by 230 basis points relative to benchmarks, indicating potential for more inflows, according to HSBC. In terms of sectors, the brokerage favors growth names, beneficiaries of state-owned enterprise reforms and high dividend stocks.
Meanwhile, HSBC cut its call on Mexican stocks to neutral from overweight to fund the China upgrade. It expects global developing-nation funds to close their overweight positions in markets that are underperforming – mainly Latin America — to add to their holding of mainland China equities.
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