There may be a lot of caution with investing in Chinese stocks — but asset manager Jason Hsu sees opportunities to play the market. “Chinese stocks are trading at the cheapest they’ve ever been. They offer such a big discount and are certainly good investments within a portfolio. There is a risk with China — with how the economy will take form — but with stocks being so cheap, it is a risk worth taking,” Hsu, who is the chairman and chief investment officer of Rayliant Global Advisors, told CNBC Pro on March 13. “I’m of the view that if you wait around for the uncertainty to be over – the opportunities will be gone. Everyone is sure that China is going to be back in the race. So, the fact that there is a lot of negative sentiment now means you’re getting a big discount for holding on for future growth in China,” he added. The Chinese economy and stock market have been dogged by declining foreign investments and a prolonged property market slump. But things could be about to turn around for the Asian powerhouse, which left behind months of deflation in February with a 0.7% year-on-year rise in consumer prices . Factory activity in China also expanded for a third-straight month in January. The stock market has also been picking up, with the Shanghai Composite Index — which hit a five-year low in early February — gaining over 6% in the past month to cross 3,000. Hsu suggests that investors allocate around 7% to 8% of their portfolio to Chinese stocks. The remaining funds should go toward U.S. stocks (60%), developed markets like Japan (20%), and other emerging markets (12%). ‘A great growth story’ When it comes to the Chinese market, Hsu views state-owned food and beverage company Kweichow Moutai as good short-term play. The asset manager says the company — which produces liquor — has “a lot of brand premium, ” and likes it for its “great growth story.” “The liquor bottles are collectors’ items and they are always sold out – you cannot buy them on the company’s website so you can only get them on the grey market. They increase their price every year, but people still buy it,” Hsu said. He expects the company’s margins to grow as demand for luxury alcohol grows alongside the pick-up in the Chinese economy. Given the “really high dividends” that Kweichow Moutai pays out, Hsu added that it makes a “relatively safe investment in the currently volatile market.” FactSet data shows that the company has a dividend yield of 2.6%. Moutai’s shares are down nearly 2% over the last 12 months, but have risen 4.06% over the last three months. Of the 40 analysts covering the stock, 38 give it a buy or overweight rating and two have a hold rating, according to FactSet data. The analysts’ average price target for the stock is 2,158.53 Chinese yuan ($300.30), giving it 25% potential upside. Shares of Moutai are traded in the Shanghai Stock Exchange and held in the Pacer CSOP FTSE China A50 ETF and KraneShares CICC China Consumer Leaders Index ETF. ‘A name worth investing in’ A longer-term play on Hsu’s radar is electric vehicle maker BYD . The Warren Buffett-backed company has been making headlines amid stiff competition with its U.S. rival Tesla and other Chinese automakers. BYD has been facing regulatory headwinds in the U.S. and Europe, but Hsu sees this as a short-term challenge, similar to what Japanese automaker Toyota faced from the U.S. authorities “when it started to beat everyone in terms of quality and better prices.” “Toyota found ways around it by moving production to the U.S. And we now see BYD taking that same script from Toyota. Today, it just has the best balance in terms of quality to price in the consumer discretionary segment. I think it is a name worth investing in,” Hsu said. BYD is also making waves with its recently launched electric supercar that can supposedly hit speeds similar to high-end models produced by the industry race carmakers like Ferrari . BYD’s shares are up 4.7% over the last 12 months, and about 3% over the last three months. The automaker is listed in the Hong Kong and New York stock exchanges. Of the 35 analysts covering the stock, 33 give it a buy or overweight rating, one has a hold rating and one has a sell rating, according to FactSet data. The analysts’ average price target for the stock is 304.53 Hong Kong dollars ($38.93), giving it around 45.4% potential downside.
Chinese stocks are ‘a risk worth taking,’ asset manager says — naming 2 he likes
Mar 14, 2024
