China’s reopening has gotten Wall Street excited. Here’s how the pros are playing it

Published Mon, Jan 9 20237:51 PM EST

China marked another milestone in its departure from zero-Covid this weekend as it reopened sea and land crossings with Hong Kong and ended quarantine requirements for inbound travelers . Beijing's sudden and rapid dismantling of its stringent Covid-19 controls after nearly three years has raised hopes that its battered economy could follow a similarly rapid pace of recovery — and that has gotten many analysts excited. Over the past week, a host of Wall Street banks have turned increasingly bullish on the world's second-largest economy and have upgraded their outlook on Chinese stocks. "We expect 2023 to be a year of recovery and normalization for China, in terms of social economic activities, GDP and corporate earnings growth, and equity market multiples," Bank of America 's analysts, led by Winnie Wu, wrote in a note on Jan. 6. Morgan Stanley expects China's GDP to grow by an "above-consensus" 5.4% in 2023, on the back of a "fast-tracked" reopening and more proactive policy easing. HSBC and Credit Suisse have forecast growth of 5% and 4.5%, respectively. Meanwhile, UBS says Chinese stocks look increasingly attractive. "We have upgraded Chinese equities to Most Preferred within our Asia asset class preference, on the back of a faster-than-anticipated reopening, continuous domestic policy support, and stronger earnings growth compared to other markets within Asia ex-Japan," UBS analyst Eva Lee wrote in Jan. 5 note. How to play the reopening Against this backdrop, analysts have named a slew of both Chinese and global stocks they think will benefit most from China's reopening. Unsurprisingly, several stocks that are directly exposed to the reopening, such as those in food and beverage, hotels, and airlines, made the banks' lists. Bank of America's domestic reopening beneficiaries include consumer stocks such as alcoholic beverage makers Kweichow Moutai and Tsingtao Brew , airline stocks including China Southern Airlines , as well as online travel platform Trip.com . Several of the bank's picks also made it to Morgan Stanley's list, such as fast-food company Yum China , sportswear firm Li Ning , alcoholic beverage makers Wuliangye Yibin and Budweiser Brewing Company APAC , and pharmaceutical firm WuXi AppTec . "Redirected pent-up demand, on-track recovery, and potential allocation inflow should help domestic reopening beneficiaries continue to do well in the near term," Morgan Stanley 's Asia strategist Laura Wang wrote on Jan. 5. HSBC noted in a Jan. 6 note that Asian hotel and airline stocks such as Cathay Pacific , Hong Kong conglomerate Swire Pacific and Singapore's CDL Hospitality REIT have already climbed higher in the wake of China's reopening but could continue to rally. Less obvious picks The banks also pointed to several less obvious beneficiaries. "Consumer, internet, select pharmaceutical and medical equipment names, transportation and capital goods, and material sectors are likely key beneficiaries of continued easing of China's Covid-related restrictions. For the longer term, we prefer sectors benefiting from strong policy tailwinds, including electric vehicle battery and materials, renewable energy, and industrial upgrade beneficiaries," Lee from UBS said. Bank of America continues to prefer "growth-biased" sectors, such as internet and health care. It also likes insurance, hotel & restaurants, and some industrial sectors. The bank named several large-cap and index-heavy stocks it thinks will "continue to lead the rally" on the back of improving investor confidence. They include electric vehicle makers Nio and BYD , Meituan , JD.com , Tencent and Alibaba . HSBC's list of "less obvious beneficiaries" includes stocks in the tech and automotive sectors, such as Chinese battery manufacturer Contemporary Amperex Technology and autos component maker Ningbo Joyson Electronic . Global stocks The analysts also say there are opportunities beyond Chinese and Asian equities. Bank of Americas and Morgan Stanley both named U.S. luggage retailer Samsonite as a beneficiary stock. Meanwhile, Morgan Stanley's European strategists also identified several stocks they think are "positively geared" to a China upturn. The bank's picks include steelmaker ArcelorMittal , French luxury fashion house LVMH , Richemont , Siemens and German chemicals firm Covestro . "A faster-than-expected economic recovery in China would be a positive for European equities relative to most other regions… At 8% of sales, Europe has the second-highest exposure of any region to China," strategist Graham Secker wrote in a note on Jan. 6. — CNBC's Michael Bloom contributed to reporting