Buy Chinese Stocks and Sell Big US Tech Brands, BofA’s Hartnett Says

(Bloomberg) — The chorus of strategists turning bullish on Chinese stocks is getting louder by the day, with Bank of America Corp.’s Michael Hartnett the latest to recommend the nation’s equities as a top buy for 2023.

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China’s economic reopening is set to boost equities as households have excess savings, strategists led by Hartnett wrote in a note dated Nov. 22, adding that the ending of Covid restrictions boosted stocks in the US and other countries. They also recommended selling US tech stocks among their top 10 trades for 2023.

Hartnett follows others on Wall Street who have recently turned positive on China. Citigroup Inc. said that Beijing’s pivot from Covid Zero, as well as supportive measures for the property sector, should lift company earnings, while Morgan Stanley raised its targets for the nation’s stock gauges.

The calls come amid a sharp rebound for Chinese stocks, with the MSCI China Index up about 19% this month and the Hang Seng Index entering a bull market after surprise policy shifts from China’s government. Still, MSCI Inc.’s gauge remains down 33% this year, with investors put off by strict Covid measures and wary of President Xi Jinping’s vision for markets. Before this month, Chinese equities onshore and in Hong Kong had seen a $6 trillion selloff since their peak in February last year.

The Bank of America strategists also named selling US tech stocks as one of their top trades for 2023. Tech is still over-owned, even after a 28% slump for the Nasdaq 100 Index this year, they said. Heavyweight tech companies — valued on future earnings potential — will suffer as the era of easy monetary policy is over, while also facing risks from more regulation, according to Hartnett.

Analyst estimates also reflect an increasingly negative view on US tech. The sector is now expected to see earnings contract in 2023, down from expectations of 3.8% earnings per share growth as recently as mid-October, according to Gina Martin Adams, chief equity strategist at Bloomberg Intelligence. For the overall S&P 500, analysts expect 3.1% profit growth.

–With assistance from Michael Msika and Ksenia Galouchko.