What foreigners are buying and selling after China stock rout

HONG KONG: Foreign investors are zeroing in on healthcare and consumer stocks and ditching some old favourites, as they sift through the spoils of a US$2 trillion selloff in China’s equity market.

Companies exposed to China’s growing middle class and resilient to external turbulence like the trade fight are popular picks for foreigners investing via trading links with Hong Kong.

Liquor maker Kweichow Moutai Co, Han’s Laser Technology Industry Group Co and Jiangsu Hengrui Medicine Co are among those in demand, while Gree Electric Appliances Inc and Shanghai International Airport Co have fallen out of favour.

“Investors are focusing on defensive stocks, such as companies with strong earnings visibility and a high probability of delivering growth regardless of the short-term macro slowdown,” said Caroline Maurer, head of greater China equities at BNP Paribas Asset Management in Hong Kong.

“White liquor and healthcare names are likely to be in this category.”

Chinese shares have been on a downward slide since hitting a more than two-year high in January, as investors worried about Beijing’s campaign to rein in leverage and its impact on liquidity, as well as corporate defaults, the slowing economy and an intensifying spat over trade and technology investment between China and the US.

The CSI 300 Index of Chinese large-cap stocks has fallen 22% from its Jan 24 high. Its consumer staples sub-gauge – which includes Moutai – is the third best performer on the index over that period, despite falling 14%. The healthcare sector is the one bright spot, advancing 9.6% as a group. Jiangsu Hengrui has helped lead the charge with a 21% gain.

The outperformance of healthcare stocks is a reflection of the growing middle class in China wanting better medical coverage, while steadily improving living standards have buoyed consumer stocks, said Tai Hui, chief market strategist at JPMorgan Asset Management in Hong Kong.

According to Hong Kong Stock Exchange data, foreign investor ownership of Gree Electric via the trading links has fallen to 7.9% from 9.1% in January.

It slipped to as low as 6.7% in late April, when the home appliance maker skipped a dividend payout for the first time in 11 years.