A stunning reversal in Chinese stocks in November has investors once again reassessing whether now is the time to double down on this once-hot market. Alibaba shares, while down on Wednesday, are on track for their best month in seven years, up roughly 23%. The KraneShares CSI China Internet ETF , which houses a basket of Chinese technology stocks, is up 35% in November, on track for its best month on record. The fund is still down 28% in 2022. JPMorgan’s chair of global research Joyce Chang said Monday’s three-hour meeting between President Joe Biden and Chinese president Xi Jinping was constructive while Teneo Intelligence called it a modest success. “Biden’s comments that he did not see an imminent threat to Taiwan from China were also noteworthy…,” said Chang to CNBC. “The communication was constructive with the intent to resume routine bilateral dialogue, importantly resuming climate talks.” Biden’s comments that he did not see an imminent threat to Taiwan from China were also noteworthy although Russia/Ukraine were not discussed.” Investors CNBC spoke to remain encouraged by the country’s much-needed reopening but want more evidence to suggest Beijing is easing its zero-Covid policy. “Markets are now reflecting a different range of near-term outcomes – less asymmetric to the downside. That’s partly on hope that reopening will occur next year and lead to a boost in consumption, and partly on more steps the government is taking to try to stabilize housing, which is a material part of overall GDP,” said Rebecca Patterson, chief investment strategist at Bridgewater Associates, to CNBC. On Monday, shares of major Chinese-listed real estate stocks soared after Beijing announced plans to help its debt-ridden property sector. Last week, China relaxed travel restrictions for foreign travelers by cutting the quarantine requirement from seven to five days. Following these changes, Bank of America strategist Ajay Singh upgraded China on Tuesday to “tactically constructive.” Within China, Singh recommends energy, materials, industrials, and consumer discretionary sectors. Ali Wyne, senior analyst with Eurasia Group’s Global Macro-Geopolitics practice, cautions that steps like these are indicative of a gradual reopening but not a “total abandonment of Beijing’s zero-Covid policy.” Broader Chinese markets are rallying this month. The Shanghai Composite has advanced nearly 10%, while the Hang Seng is up 24%. Yet, prominent investor Marc Lasry is still sticking to the sidelines. When asked whether now is the time to gain more exposure to China, Avenue Capital’s Lasry told CNBC in an email on Tuesday that it was “too early.” The latest third-quarter 13F filings ending Sept. 30 also show several reputable hedge funds reducing their exposure to Chinese tech stocks. Coatue reduced its stake in Alibaba by nearly 88% and JD.com by about 56%. David Tepper’s Appaloosa Management trimmed its Alibaba position by 10%, while Ray Dalio’s Bridgewater Capital cut its Baidu position by close to 20%. However, there were some notable investors who bought more shares. For instance, Dan Sundheim’s D1 Capital took a new stake in JD.com. These positions may have changed since the end of September, but the data does suggest buy-side investors remain cautious on owning Chinese tech. “Structural challenges for China have not disappeared, and the backward looking data still reflect a sluggish economy,” added Patterson. Earlier this month, The Wall Street Journal reported that Tiger Global is halting new investments in Chinese equities due in part to the country’s zero-COVID policy and the risk of a Taiwan invasion. Latest fund flow data from the Institute of International Finance shows while Chinese equities have seen inflows over the past two weeks, they follow massive outflows of $7.6 billion in October. In addition to G-20 talks, Chang said investors will be monitoring China’s Central Economic Work Conference in early December for any possible policy changes or announcements.
