Stocks to buy as China decouples from the west
As investors around the world watch their local markets tumble, many are drawn to the sudden allure of Chinese equities.
Pete Sweeney, Asian economics editor for Reuters, said Chinese stocks “looked cheap”, after falling broadly for more than 12 months.
“On paper at least, this kind of decoupling (from other markets) provides exactly the kind of speculation traders want when their local markets crash,” he wrote.
That’s a sentiment echoed by Brendan Ahern, the chief investment officer of KraneShares, which runs a suite of China-focused ETFs.
In an interview on CNBC, Ahern said “KraneShares CSI China Internet ETF” (KWEB) is performing well in a gloomy global environment.
“It’s been a terrible week for US, European, Asian equities…and yet the KWEB is looking to end the week probably up around 10%,” he said.
“So you’re looking at a 15% outperformance against the S&P 500 this week alone.
“So I think investors have to potentially…take advantage of the performance we’re seeing in this space.”
Which Chinese stocks to buy?
One of the main reasons for China’s struggles over the past 12 months was the regulatory crackdown on tech stocks at the hands of the Chinese government, but Ahern believes there has been a change.
“I think there are a lot of signs that this regulatory cycle is probably over or very late innings,” he said.
“(It’s) simply based on the user protection laws that came into effect at the end of last year and certainly on speeches like (that of) Vice Premier (of the Chinese Communist Party) Liu He March 16.
“So…I think we’re very confident that the worst is probably over. I think we are much less worried today.
This means that, from a valuation perspective, Ahern thinks a promising stock could be Alibaba, which over the past month has seen its price soar.
He also mentions search engine provider Baidu, e-commerce giant JD and Hong Kong-listed companies Tencent, Meituan and Kuaishou.
“Most of these names are still 1-2 standard deviations below their historical five-year valuation levels, so we believe there is still good opportunity,” he said.
Chinese stock investors may be celebrating, but Pete Sweeney reminded people of the problems facing Chinese developers, the dangers of a recession between trading partners, a looming unemployment crisis and zero policy lockdowns -Covid.
“So China’s discount is less attractive than it looks,” he said.