China bulls are betting on growth
Opportunities in bounceback
MONEY managers are more bullish on China as the Asian powerhouse gears up for growth, with Chinese equities surging on the turnaround in sentiment.
Having hit lows in late October, Chinese stocks have bounced strongly, driven by the country moving to abandon its strict Covid-19 health controls and an easing of regulatory crackdowns.
Despite the sharemarket recovery, many sectors are still attractive, with valuations well off their 2021 peaks, according to Asia-focused fund managers.
The technology and gaming sectors are among the top picks for Maple-Brown Abbott portfolio manager Will Main. “We think a number of the internet names are likely to do well. You’ve obviously got overall demand coming back following what was a pretty tough period, with earnings estimates being cut over the last 18 months or so,” Mr Main said.
“The companies themselves have had a real costcutting focus over the last 12 months,” he added. “As the economy turns, you’ll see the top line start to really accelerate and I think that you’re going to get real operational leverage and some very solid earnings growth coming out of that.”
Mr Main, who runs MapleBrown Abbott’s Asian Investment Trust alongside Geoffrey Bazzan, said the fund bought into the market weakness in 2022, leaving it in a position to benefit from a recovery. Even with the jump in recent weeks, stocks are about 40 per cent off their 2021 highs, he said.
“Certainly sentiment has changed from what was incredibly bearish and pessimistic to something more positive now. And there are plenty of stocks that are reopening plays – the challenge is finding the ones that are going to go up the most,” he said.
Chinese entertainment giant Tencent Holdings was among the fund’s top five holdings as at December 31. The stock, along with e-commerce heavyweight Alibaba, has made double-digit gains since the start of the month as investors bet big on the recovery. His fund has returned 10.7 per cent over the three months to December 31, compared to the benchmark’s 5.6 per cent.
For Platinum Asia Fund stockpicker Cameron Robertson, Chinese equities are not considered expensive even after the recent rally – with the economic outlook “reasonably good” and a lot of room for investors to come back in. The fund is looking to add to its China positions as opportunities come up but it’s also taking profits following the recent rally, he said.
“Tech stocks have had a big rally, and so have some of the travel-related companies as well, including the likes of Trip.com,” he said.
Andrew Swan from Man GLG is another fundie bullish on China’s outlook. But he doesn’t necessarily see a broad recovery. “We feel that China’s a little bit different in that the excess savings that are in the system aren’t as significant as what was accumulated in the West,” he said.