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Some companies avoid regulatory risk in China
M4 BARRON’S September 27, 2021
By Craig Mellow
Translators: Kerwin, Catherine
With the outbreak of the real estate crisis of China Evergrande Group, after several months of supervision, a large number of companies are in a new posture with the state and market dialogue, china's investment market has broad prospects. More than that, upfront brief fluctuations in market sentiment may provide investors with the opportunity to buy. "We have adjusted our portfolio to align with the Chinese government," said Nuno Fernandes, co-manager of strategy at GW&K Investment Management, a U.S. investment management firm.
It may not be a coincidence that the Chinese government's regulatory focus seems to have fallen on areas of concentrated foreign focus: Internet platform companies and online education service providers. The movement of the various indicators also describes a more concrete fact. The iShares MSCI China ETF (MCHI) has fallen 20 percent in the past three months, and the top three components of the fund are Tencent Holdings (700. Hong Kong), Alibaba Group Holdings (BABA) and Meituan (3690.Hong Kong). Domestic A-share ETF-iShares fell 5%, of which in A-shares, liquor manufacturing group Guizhou Moutai (600519.China) and electric vehicle battery champion Ningde Times (300750. China) was the first to fall.
A.M. Morgan Stanley International China ETF (MCHI) is currently one of the largest and most liquid Chinese ETFs listed in the United States, along with an aus China Broad-Cap ETF (FXI).
While market-specific regulatory measures may not be accurately predictable, China's two broad policy goals appear clear and consistent: dominance over next-generation technology, and shifting the distribution of wealth from the current pyramid to an olive-shaped one that expands the middle class. Clearly, many public companies are benefiting from these policy objectives.
Betting on technology-driven (companies) is even more pronounced. Stock prices aren't cheap at the moment, but current regulatory changes offer just a great investment opportunity. Nick Niziolek, head of global strategy at Calamos Investments, is bullish on NINGD and BYD , which dominate China's electric vehicle battery space (1211. Hong Kong）。 After a mid-year surge in the shares of both companies, the secondary market performance of the stocks has continued to be sluggish since August.
Today, areas related to semiconductors, artificial intelligence and automation are being given priority attention by the Chinese government and businesses, as are the renewable energy sectors. Nick Nizollek said that the company that also straddles these areas is the manufacturer of grid equipment optimization, Nari Technology (600406.China), whichse stock price began to slow in September after rising 60% this year.
Dan Chace, principal portfolio manager for Greater China at Wasatch Global Investors, added that 300327. China), a company that makes circuits for household appliances, saw a final gasp in its stock price after rising 150 percent from January to September. In addition, both Wasatch managers are bullish on WuXi Biopharma (2269.Hong Kong), which has laid the foundation for China's technological catch-up in the pharmaceutical sector.
Fernandes of GW&K, an American investment management firm, is thinking more about what would happen if China achieved "common prosperity" and "the next 600 million Chinese into the middle class" — a more speculative proposition. But the valuations of the underlying stocks are not all that exciting. Fernandes and co-manager Tom Masi are more bullish on insurer AIA Group (1299.HongKong) and the "China Marriott" hotel chain HTHT because of their ability to attract a wider consumer base.
Few investors believe that there will be a comprehensive rebound in the Chinese market. Michael Kelly, global head of multi-assets at Pinebridge Investments, said the government's advocacy of "turning the rich" was popular and was not a whim but a shift in course. "It's a meaningful long-term shift from pursuing growth to supporting the expansion of middle-class groups," he said, on the other hand, "and if you align with the state's policies, there are some heartwarming success stories." ”
How to make a choice consistent with national policies? This may be a more difficult problem for businesses. Obviously, more companies need to rethink and deduce the logic of development.
Edit: Multi-gold
Editor: Qiu Qiu
Image source: Network intrusion and deletion