After a tough start to the week, the Chinese market is once again in the spotlight. China’s blue-chip CSI 300 index soared more than 10% at the open on Tuesday on hopes for economic stimulus after the seven-day Golden Week holiday. However, the gains subsided as investors were overwhelmed as China’s National Development and Reform Commission refrained from announcing another major economic stimulus package. The CSI300 closed 5.93% higher on Tuesday, while Hong Kong’s Hang Seng Index closed 9.4% lower. Ahead of the holiday, the Chinese government announced a series of economic stimulus measures, including lower interest rates, lower bank reserve requirements, relaxing real estate purchase rules and supporting stock market liquidity. Markets welcomed the news, and Wall Street strategists adopted a more positive view of China, which until recently was seen as a contrarian trade. As investors consider whether and how to invest in China, two experts share their views on the current market. From ‘neutral’ to ‘overweight’ For Jingwei Chen, chief investment strategist at asset management firm Wise Private Singapore, the first signs of economic stimulus were enough to change his bullish stance on China. . “Given the scope of these interventions, we have revised our outlook (for the country) to reflect renewed confidence in the region’s potential for recovery,” he told CNBC Pro. The company’s wealth management company, which serves ultra-high-net-worth individuals in Asia, the Middle East and Europe, was previously neutral on China. “We believe that the scale and focus of these measures, particularly targeted liquidity injections, can address the critical issue of a lack of domestic capital inflows into China’s stock market. We anticipate a shift towards greater market participation,” he said. “This should boost stock performance.” Although Chen is optimistic about the future, he said he is selective in his investment approach and seeks “opportunities in industry leaders with strong fundamentals and solid capital return strategies, especially in the electric vehicle and internet sectors.” . Companies in these sectors have shown upward revisions in earnings and have the ability to outperform in the short term, he explained. His top picks include automaker BYD and tech giant Tencent Holdings. Other sectors Chen likes include utilities, energy, telecommunications and finance. They all have “strong earnings prospects and defensible dividend yields” and stand to benefit from the low interest rate environment and ongoing state-owned enterprise reform, he added. “China is no longer cheap,” said Lorraine Tan, director of Asia equity research at Morningstar, who is more cautious about the future. While Chinese stocks have often been described as “undervalued” over the past year, Tan said that Hong Kong and Chinese markets “have risen to a level where they no longer offer attractive upside against the risk of disappointment.” said. “At this point, the China market is no longer cheap. Over the past two weeks, our China coverage universe has gone from a 21% discount to our fair value estimate to now just 4%. “Given the limited selling, the impact of buying resulted in large price movements,” Tan wrote in an Oct. 8 note. “We still think there is a buying opportunity, but we will be cautious in our selection as the risk-reward ratio has increased,” Tan added. He’s betting on select companies in sectors that still offer “more attractive discounts,” including consumer cyclicals, defensive products and communications services. Stocks she’s eyeing include “higher quality, deep-rooted names” such as fast-food restaurant chain Yum China Holdings and real estate developer China Resources Land. Economic moat refers to a company’s competitive advantage. —CNBC’s Lim Hui Jie contributed to this report.
