In the upcoming year, investors eyeing Chinese stocks are shifting their focus towards companies with global reach or inherent resilience against economic downturns.
This shift comes after three consecutive years of China’s stock market underperforming global markets.
Leading the list of preferred investments are companies in defensive sectors such as healthcare, medical innovation, and players in the electric vehicle supply chain and advanced manufacturing.
Additionally, multinational corporations like e-commerce firm PDD Holdings are gaining attention.
This shift in investment strategy is occurring despite sell-side analysts expressing bullish sentiments about China’s broader market performance in the coming year, with Morgan Stanley and Goldman Sachs predicting that Chinese equities will outperform the S&P 500.
Wang Qing, Chairman at Shanghai Chongyang Investment Management, explains that due to a slower-than-expected economic recovery, they have reduced exposure to investments sensitive to macroeconomic cycles.
Instead, Chongyang is turning to defensive high-dividend stocks, global-competitive medical innovators, and advanced manufacturing companies supported by Beijing.
This shift in investor sentiment follows a challenging year for Chinese stocks, with the blue-chip CSI300 index sinking to five-year lows and losing 12% of its value, compared to a 15% gain in global stocks.
The challenges were largely attributed to a property crisis and a slow post-COVID-19 recovery in the Chinese economy. Hong Kong’s Hang Seng index performed even worse, sliding over 18%.
The pessimistic performance of Chinese equities in the past year has led investors to question the future growth drivers for China.
Moody’s recent downgrade warning on China’s credit rating, partly due to the property sector’s troubles, has added to the uncertainty.
Real estate, which once constituted a significant portion of China’s economy, is grappling with developer failures and a crisis of confidence.
Despite this uncertainty, some investors are finding value in exporters, multinationals, and state-owned enterprises.
For instance, the stock of PDD Holdings, which owns the U.S.-based shopping app Temu, has surged by 75%. Discount retailer Miniso, with a global footprint, has seen an 80% increase in its shares.
While there are opportunities for value investors, many fund managers remain cautious about China’s domestic demand.
However, there are those who believe in the long-term potential of China’s economy, especially as it expands globally. Invesco, for instance, is overweight on Chinese assets in its Asian portfolios, emphasizing the allure of global expansion.
Despite differing opinions, one thing is clear: the landscape of Chinese stock investments is evolving, with investors seeking shelter from market volatility and macroeconomic challenges.