3 Experts See More Investing Opportunities Ahead

  • Leading Chinese internet stocks rose 20% to 30% last Wednesday and recovered through the weekend.
  • Stocks have suffered big losses over the past year, but investors now see cause for optimism.
  • Investors saw progress in a number of areas that worried them greatly, such as: B. Government regulations.

It’s not everyday for a handful of the world’s largest companies to collectively surge 20% to 30% — and it’s even rarer for traders to take that kind of move.

Chinese companies, and tech stocks in particular, have come under a lot of pressure over the past year as the Chinese government enacted key regulations affecting social media, e-commerce and video game companies in a bid to curb what it describes as monopolistic behavior.

At the same time, tensions between the US and China were rising, with Beijing raising concerns about allowing companies with access to sensitive data to list their shares in the US. Moreover, late last week, the US Securities and Exchange Commission said that could be the case Delisting of five Chinese companies from US stock exchanges because the companies don’t allow US auditors to audit their finances, leading to even more sales.

That’s why the giant rally on Wednesday, March 16, came as a relief after Chinese Vice Premier Liu He announced it The Chinese government would support the financial markets and implement beneficial policies. Liu also said the government intends to stabilize China’s real estate sector, a concern for investors.

In addition, Liu advocated overseas listings of Chinese companies, saying US and Chinese regulators are making progress in resolving the issues that initially led to the delisting threat.

Investors cheer the Chinese stock market rally

According to Ajay Krishnan, manager of Wasatch’s Global Opportunities Fund, easing the tech crackdown is “a big deal.” He just won a Refinitiv Lipper Award for best global small and mid-cap fund in five years.

“They say efforts to ‘fix’ internet platform companies should be completed as soon as possible,” Krishnan told Insider. “It was a clear signal that politics was shifting from antagonistic to at least neutral.”

Nick Niziolek, fund manager, head of global strategy and co-chief investment officer at Calamos Investments, said the Chinese government’s announcements have reassured investors that it will treat access to global equity markets as a priority.

“I think there are a lot of people who are wondering whether or not capitalism is dead in China and whether the Communist Party even cares how the Chinese stock market is doing,” he said.

Niziolek also said it looks like US and Chinese regulators are working out a system where China will allow some companies to be audited in the US, and deny that permission to a few companies that have access to particularly sensitive ones have data. These shares would presumably be listed in Hong Kong.

Chinese stocks gave back a small portion of their gains on Thursday, but then rebounded on Friday after Chinese President Xi Jinping announced some changes to the country’s “zero-COVID” policy. The government has responded to potential breakouts with strict lockdowns, and both Krishnan and Niziolek had cited these rules as the biggest challenge facing Chinese stocks at the moment.

The tech crackdown, the threat of delisting, and the pandemic aren’t the only issues plaguing Chinese stocks. There are also fears that China’s real estate market could be a bubble fueling the economy, the slowing growth of China’s economy, the poor performance of growth stocks in general and, most recently, China’s relationship with Russia.

The result is that the performance of Chinese stocks has been abysmal over the past year. Big names like Alibaba, Baidu, and Meituan have lost half their value in that time, and the KraneShares CSI China Internet ETF is down 70%. But with so many stocks down so dramatically, there may be some opportunities to invest in good companies at a discount.

“It’s priced in just enough of these areas of risk that we think the opportunity for investors is tremendous,” said Ginny Chong, who manages Mondrian Investment Partners’ $3 billion to $4 billion in Emerging Markets Value Equity Fund. Dollar in China is responsible.

Buy Chinese stocks

Despite all the troubles facing the Chinese stock market, the three fund managers see many reasons to be bullish on China’s tech companies now – although they generally have different stances on Chinese equities.

Niziolek says he’s adding more exposure to companies that have been “in the crosshairs.” Alibaba, baiduand Tencent.

“Fundamentals are still strong over a multi-year period. Valuations are much more attractive,” he said. He also likes shoemakers coating and high-quality Chinese insurance companies, and he’s started adding some real estate investments to his portfolio simply because those stocks have fallen so far.

Niziolek also says he has beefed up casinos and restaurants in Macau to take advantage of an easing of China’s COVID containment rules.

Krishnan says he has no investments in the big Chinese tech companies, but he mentioned chipmaker Silergy as a favorite among Chinese stocks.

“It’s an analog semiconductor company. These deals tend to be very long lasting. So think Texas Instruments, Analog Devices in the US,” he said. “They are a direct beneficiary of semiconductor growth in China. If the Chinese government is pushing for domestic semiconductor production, a company like Silergy fits into that equation.”

Chong says consumer internet companies account for about a third of their investments in China. Notable positions include Alibaba, Baidu, Tencent, and the auto dealer AutoHome.

The other two-thirds include consumer names like wine and spirits producers Wuliangyelike financial companies China Merchants Bank and ping onand companies in industries that the government will prioritize supporting, such as solar energy companies Longi Green Energy and Xinyi Solar.

Chong stressed that China’s government is taking a very long-term view and is focused on raising the country’s living standards.

“China is really playing the long game and has a very, very long-term perspective alongside this leadership,” she said. “I think investors should take this as a sign of their willingness to mitigate the risks to their economy and, fortunately, to the rest of us.”

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