Source: Barron Weekly
Chinese stocks are ready to continue to rise in the coming year of the Rabbit. On January 8, China formally implemented "Class B management" on novel coronavirus infection, reviving economic growth became a priority, laying the foundation for Chinese stocks to recover the lost ground of the past two years.
Positive signals from the internet industry and real estate are another catalyst for Chinese stocks as the focus shifts to economic growth. Economists expect the Chinese government to introduce more stimulus measures and take measures to boost job growth, giving a further boost to business and investor confidence.
These stimulus measures are expected to create a virtuous cycle of wage growth, boost consumer confidence, and may lead to a consumption boom, including home purchases, thereby stimulating domestic economic growth.
Xu Zhongxiang (Jason Hsu), founder of Rayliant Global Advisors, an internationally renowned fundamental quantitative investment agency, said: "as long as there is good news, the good news itself can drive the Chinese stock market to win. 2023 will be a difficult year for all countries. As an exporter, China will also be affected, but China has plenty of monetary and fiscal policy space, which is more attractive than the United States or Europe. "
Chinese stocks have risen sharply, especially in an index with a large number of foreign investors. China's ETF, the largest in the US market.$iShares MSCI China ETF (MCHI.US)$It has risen 40% since the end of October 2022, ETF$Invesco Golden Dragon China ETF (PGJ.US)$It's up 74% over the same period.
Fund managers believe that Chinese stocks will rise further in the future.
"We focus on high-quality companies with good management and good balance sheets," said Basak Yavuz, co-head of emerging market equities at Goldman Sachs Group asset management (Goldman Sachs Asset Management).
Yavuz, watch.$Budweiser Brewing Company APAC Limited (01876.HK)$And consumer-oriented quality companies such as Guizhou Moutai, and the increase in passenger traffic in restaurants and bars is good for such companies. Another company that Yavuz is fond of is$Meituan-W (03690.HK)$Although the number of people ordering takeout is likely to be lower than during the epidemic, Yavuz believes that the reopening of the economy is expected to boost Meituan's strong growth in restaurant and hotel bookings.
The share prices of some companies that have benefited from the increase in consumer spending have risen sharply, but Yavuz believes that companies like$TRIP.COM-S (09961.HK)$$Trip.com (TCOM.US)$Such companies will rise further. Trip.com is the first choice for domestic travel bookings, but 30 per cent of his income comes from outbound travel. Yawuzi believes that after the lifting of outbound travel restrictions, Trip.com 's outbound travel business is expected to rebound significantly.
With the recovery of China's economy, including$Yum China-S (09987.HK)$$Yum China (YUMC.US)$Many Chinese companies, among others, are expected to see stronger earnings growth. Although Yum China has risen 50 per cent since the end of October, the share price of the world's largest restaurant operator is still 40 per cent below its high in early 2021, another attraction besides benefiting from the reopening of the economy.
"Yum China's management is very strict, the management did very well during the epidemic, and the company will become better and stronger," said Leon Eidelman, co-manager of JPMorgan Chase & Co emerging Markets Equity Fund (JPMorgan Emerging Market Equity, JFAMX).
Dan Chase, co-manager of Wasatch's emerging market small cap fund (Wasatch Emerging Markets Small Cap, WAEMX), is bullish on companies that are both suitable for long-term holdings and benefit from economic reopening, such as Yadek, a factory automation company listed on the Taiwan Stock Exchange, whose shares are expected to get a boost as manufacturing activity recovers. Chase is still optimistic.$CTG DUTY-FREE (01880.HK)$The company has benefited from a pick-up in tourism.
Tourism is one of the sectors that fund managers expect to rebound quickly, and bookings have risen sharply. Before the outbreak, Chinese tourists were the world's largest tourism group, and fund managers expect the number of Chinese citizens to travel abroad to return to growth as international travel restrictions are lifted.
Alexis Deldrier (Alexis Deladerriere), head of international developed market equities at Goldman Sachs Group Asset Management (Goldman Sachs Asset Management), points out that in addition to Chinese companies, some foreign companies will also benefit from the increase in the number of outbound tourists.$Disney (DIS.US)$Is one of them, in addition to getting a boost from the reopening of the park in China, the increase in the number of outbound tourists will also boost the number of visitors to Walt Disney Company Paradise in other parts of the world.
The other company is$InterContinental Hotels (IHG.US)$The company owns the popular brand Holiday Inn (Holiday Inn) in China. About 1/5 of Continental Hotel Group's hotel rooms are in China, and 1/3 of its new developments are also in China. Mr de la drier pointed out that Continental Hotel Group would receive a boost from the recovery in domestic travel in China, as well as a boost to outbound travel growth as Chinese tourists traveling abroad prefer to choose hotel brands they are more familiar with.
With the increase in the number of Chinese tourists, sales of luxury goods and cosmetics in duty-free shops will also increase. But Deldrier pointed out that French luxury companies$Moelis & Co (MC.US)$The benefit is relatively limited because the company has achieved very good results over the past two years by conducting online business and expanding its presence in the Chinese market. By contrast, retailers in China's neighboring countries are likely to be the top destinations for Chinese tourists, including J Front Retailing (3086), which runs Japanese department store chain Daimaru, according to Deldrier. Japan).
As employment picks up and the economy reopens further, companies related to advertising and e-commerce are also expected to get a boost, including Internet giants$Alibaba (BABA.US)$$BABA-SW (09988.HK)$. For now, some of the factors that led to the setbacks in the share prices of Chinese internet companies such as BABA have weakened, with BABA up 65 per cent since the end of October. After the progress of Sino-US audit and regulatory cooperation, the risk of delisting of US-listed Chinese stocks has been greatly reduced. in addition, the regulatory environment of China's Internet industry is also improving, which is further reflected by Ant Financial Services Group's approval to increase capital. For a long time, BABA has been regarded as a barometer of sentiment in China's Internet industry, and the improvement in investor confidence is good for BABA.
Fusheng Li, director of China research at Causeway, an investment agency, believes that although BABA has risen sharply in recent months, it is still 64% lower than it was in 2020, and the stock price has room to rise further. BABA has benefited from the consumer spending boom, and the company's market share will return to normal this year.
Li expects BABA to grow by at least 10 per cent, with an operating margin of 60 per cent in its core business and is expected to improve further as it cuts costs associated with some of its investments and is also buying back shares. BABA's price-to-earnings ratio is expected to rise to 18 to 19 times earnings, down from 30 times in 2017, but still higher than the current 11 times expected earnings for 2023.
As China focuses on reviving consumption and the domestic economy, many fund managers are also looking for opportunities in China's A-share market, which has risen 12 per cent since the end of October. The main ETF that invests in A shares are$iShares MSCI China A ETF (CNYA.US)$和$Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR.US)$。
On the other hand, concerns about consumers and governance of borrowing for construction mean that China's economic recovery may not lead to a boom in commodities such as iron ore. However, an increase in the number of Chinese tourists will push up oil demand, which could challenge some central banks' efforts to fight inflation.
Some fund managers also worry that as China reopens and the economy recovers, some will confuse short-term investment opportunities with long-term investment opportunities, as China still faces a series of challenges. including population reduction, high debt levels and geopolitical risks.
"similar to the situation in the United States, the release of previously pent-up demand led to a massive consumer boom," said JPMorgan Chase & Co's Edelman. At some point, the consumption boom may come down. " Edelman now sees more of the short-term upside potential of Chinese stocks.
Chinese stocks are expected to rebound sharply after a major overhaul of epidemic prevention and control measures, but it may take some time to recover all the ground lost since the end of 2020.
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