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(Bloomberg) — What do you do when China’s fast-moving markets offer investors a taste of the rebound they’ve been longing for? Buy the country’s beaten-down technology stocks.

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Big Tech is the most-favored Chinese sector by institutional and retail respondents in the latest MLIV Pulse survey, with 42% of 244 investors also saying they plan to increase their exposure to the country in the next year.

Chalk it up to a fear of missing out. The wider the gap between the share price and metrics such as earnings and sales, the greater the potential for gains when good news lands, the logic goes. That’s playing out this month amid signs that China may have started to pivot away from its Covid-Zero policy, with widely-followed stocks like Alibaba Group Holding Ltd. showing intraday surges of 20%.

There’s plenty of room for a rebound. The Hang Seng Tech Index and the Nasdaq Golden Dragon China Index of US-listed companies are down about 70% since peaking in February 2021. That’s worse than any of the 92 benchmarks tracked by Bloomberg. In September alone, funds sold $33 billion of Chinese tech stocks, according to a recent note by Morgan Stanley quants.

To be clear though, nothing fundamental has changed for the tech industry. There’s little evidence that President Xi Jinping will reverse his campaign to rein in the country’s tech giants, and efforts to prevent the delisting of Chinese stocks from US exchanges are progressing slowly. Lockdowns in key cities like Guangzhou serve as a reminder that the determination to eliminate Covid-19 is still stifling consumption and hammering the economy.

But when Chinese markets rally, they do it with gusto. Short-covering and momentum-chasing have been the major drivers of the country’s equities over the past three weeks, with mainland-based investors also snapping up bargains in Hong Kong. That’s even as big names like Tiger Global Management throw in the towel on China and reduce their allocations.

It’s no surprise that stocks can be deemed cheap. The Golden Dragon gauge trades at less than 15 times its members’ projected earnings, a 34% discount to its average of the past 10 years. Investors will get more clarity on the health of corporate China in the coming weeks, with bellwethers like Alibaba, Inc. and Pinduoduo Inc. due to report results.

Nearly a half of market participants who responded to the survey expect US-listed Chinese shares to recoup some of the losses by the end of the year. Fewer than a fifth of them saw declines continuing. Markets are underpricing a potential Covid Zero exit, according to 48% of respondents. Some 46% said markets are too enthusiastic about a reopening.

Beijing’s virus-containment policy is seen as both the biggest potential catalyst for gains and a top risk to Chinese markets next year, underscoring how central it’s become to the outlook. Goldman Sachs Group Inc. says reopening would trigger a 20% gain in Chinese equities.

In a potentially telling development, China last week cut quarantine for inbound travelers and scrapped the so-called circuit breaker system that penalizes airlines for bringing virus cases into the country. The new Politburo Standing Committee recently said the country needed to stick with the Covid Zero policy, but that officials also needed to be more targeted with their restrictions.

High interest rates will be the main risk for international financial markets next year, according to a majority of investors, followed by a slowdown in China. A global recession was also among concerns cited by respondents.

MLIV Pulse is a weekly survey of readers of the Bloomberg Professional Service and website. The latest poll was conducted in Nov. 7-11.

For more markets analysis, see the MLIV Blog. To subscribe and see previous MLIV Pulse stories, click here.

–With assistance from Kasia Klimasinska.

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