(Bloomberg) -- Europe's largest asset manager Amundi SA has turned tactically neutral on China equities in the firm's global equity allocation, citing the nation's Covid-Zero policy and property crisis.
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"While monetary and fiscal policies are accommodative, problems in the housing sector and the sporadic Covid lockdowns are affecting household incomes and spending," Amundi's Group Chief Investment Officer Vincent Mortier and team, who oversee more than $2 trillion in global assets, wrote in a note.
Amundi's downgrade on China stocks for the short-term comes nearly a week before the start of the nation's party congress, where President Xi Jinping will get another decade to steer the world's second-biggest economy. So far, there are little signs of any changes to policies that have weighed on the markets and consumers.
The MSCI China Index has more than halved from a peak in February 2021 as investors sold China equities amid concerns that the Covid lockdowns, property crisis and regulatory crackdowns would weigh on company earnings.
The asset manager has been relatively bullish on China equities for at least the last four months. Mortier told Bloomberg in May that his firm was turning more bullish on the country's stocks after trimming exposure during the first quarter's harsh selloff.
Chinese holidaymakers have cut back sharply on travel and spending during the National Day break this week. This comes as the property market shows no signs of easing, global demand for Chinese goods is slowing and as the currency is plunging.
In other calls, Amundi said US equities should do better than those in Europe even as both do not fully reflect the deteriorating economic backdrop.
It has turned negative on high-yield corporate bonds in US and Europe, citing Federal Reserve's resolve to raise rates and a mild deterioration in Europe's financial conditions.
(Updates to add more context, chart and changes by Amundi in other assets.)
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