Many expect China will exceed its 5% economic growth target.

China’s relationship with Russia and the potential role it might play in the war in Ukraine are the biggest wild-card risks to markets that investors are missing, according to the latest MLIV Pulse survey.
Geopolitical concerns and President Xi Jinping’s increasing power are casting a shadow over the optimism among professional investors, a third of whom still plan to add to their China exposure in the next 12 months.
Some 44% also expect the country to beat its 5% economic growth target this year, supporting “reopening trade” bets on China’s successful emergence from almost three years of draconian pandemic restrictions. 
“China is a difficult market and has become increasingly difficult after the rally from the end of October,” Kieran Calder, head of equity research for Asia at Union Bancaire Privee, told Bloomberg Television last week. “Never forget that the government in China is more concerned with control than it is about reform or growth.” 
Retail respondents to the survey are more cautious than their professional counterparts on Chinese markets and the economy. 
Overall, many of the 284 who participated in the poll cited numerous potential crises, including worst-case scenarios of China arming Russia’s military in Ukraine or a military clash over Taiwan. A policy mistake in Beijing, worsening US ties and the property-market slowdown are among other hazards to be wary of, the survey showed.
There are plenty of reasons for nervousness. US intelligence chiefs predict China will keep up its defense and economic cooperation with Russia, according to a report presented to a Senate committee last week. In his inaugural press conference as China’s new foreign minister, Qin Gang praised his country’s partnership with Russia and said those ties could become increasingly important if the world becomes more unstable. 
The respondents in the MLIV Pulse survey, which is global and anonymous, were asked what is the wild-card risk for China that investors aren’t focusing on.
“A significant escalation in the Russia – Ukraine war which could force China to support Russia more clearly,” wrote one respondent.
“Strengthening economic ties to Saudi Arabia and Russia, and a more Western-exclusionary policy,” said another.
Distrust of Xi, who on Friday was unanimously picked for a third term as president, is prevalent among the survey’s respondents. The majority said domestic policies and regulation are a bigger risk to Chinese stocks than US tensions. Most believe the consolidation of power among Xi and his closest allies since October will be negative for China and global markets. Some 62% of retail investors, most of them based in North America, said unopposed top leadership raises the risk of a policy mistake.
Such developments are weighing on markets. The Hang Seng China Enterprises Index of stocks has lost 17% since a peak in January and is down for the year, while stock gauges tracking tech shares in Hong Kong and Chinese property developers have entered bear markets. Both retail and professional investors favored Big Tech stocks in MLIV Pulse’s November’s survey, a bet that paid off, when Covid Zero was seen as the biggest risk.
Now investors are focusing on the potential global repercussions from China’s faster-than-expected reopening. For 41% of professional investors, the country’s economic recovery will be inflationary and bearish for global bonds. For 35% of retail respondents, it feels irrelevant for global inflation and the debt market.
To be sure, several respondents wrote in “Covid”, or “Covid rebound” as the wild-card risk.
MLIV Pulse is a weekly survey of readers of the Bloomberg Professional Service and website, conducted by Bloomberg’s Markets Live team, which also runs a 24/7 MLIV Blog on the terminal.

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