Fear of war, U.S. ADR delistings, regulatory crackdowns, a property crisis. It’s easy to see why Chinese stocks are an avoid for many investors right now.
But they’re a playground for contrarians.
You could argue a happy hunting ground for the brave value investor too.
Mean reversion anyone?
Look at this chart from Federated Hermes. Not since 1998 has the China-heavy Hang Seng Index traded at such a low valuation, relative to the rest of the word.
And here’s another from TME showing the diverging valuation gulf between China’s CSI 300 and and United States’ SPX.
Bargain buys you might say? Just don’t try pick the bottom. Some have been doing that for the last 12 months as Chinese stocks have continued to fall.
Take Alibaba, Tencent, and Meituan for example. The total value of the three tech giants together has fallen by over US$1.2 trillion since early in 2021.
But the China bulls are still out there.
Quick takes on Chinese stocks from the bulls
GW&K Investment Management portfolio manager, Nuno Fernandes.
“People are assuming that the current environment of flat revenue growth for Chinese internet stocks like Alibaba is going to continue for a while, we don’t agree with that.”
KraneShares senior investment strategist, Anthony Sassine:
“We believe China’s growth should recover in the second half of the year from the impact of the lockdowns. While revenue growth for Chinese companies may come below the long-term trend, we believe earnings growth will remain robust as companies continue to cut costs and bad investments – low valuations, low positioning, and the end of the regulatory cycle in China will continue to attract investors as growth recovers.”
Matthews Asia chief investment officer, Robert Horrocks:
“Markets with large, strong domestic economies can mitigate slowing overseas consumer demand and the prospect of recession in Europe and the United States. China’s counter-cyclical monetary stance even puts it in a position to inject stimulus and demand into its economy.”
Antipodes chief investment officer, Jacob Mitchell:
“We think China is an attractive opportunity to build exposure to great companies at attractive valuations that will act in a generally non-correlated manner to portfolio exposures sensitive to Western economic outcomes.”
Federated Hermes portfolio manager, Jonathan Pines:
“This is precisely the time to bet on the Asian giant. For more than a decade, being a contrarian has been synonymous with investing in value. Today, things are less clear cut. The sell-off in Chinese stocks has offered us an excellent opportunity to buy higher-quality stocks at bargain prices.”
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