Chips, Renewables Gain Focus From China Investors Who Plan To Avoid Regulators’ Attention
Chips, Renewables Gain Focus From China Investors Who Plan to Avoid Regulators’ Attention
A blizzard of regulatory action has battered investor confidence in China, forcing funds to restructure their portfolios. Investors in semiconductors, renewable energy, and consumer-focused companies believe they offer a safe haven from the storm of regulatory action.
China's Communist Party leadership has made a major push to pursue common prosperity at the expense of private-sector profit in recent months, according to money managers, which has hammered shares in sectors ranging from tutoring to big tech.
Despite the fact that selling has wiped billions of dollars from the value of companies in the crosshairs, such as online giants Tencent and Alibaba, the stock prices of companies seen as being on the right side of reform have risen.
As an example, since June, the Chinese indexes of clean energy stocks and semiconductor companies have risen by more than 30%, compared to a 5% decline in the overall stock market and a 15% decline in Hong Kong technology stocks.
As Suresh Tantia, senior investment strategist at Credit Suisse, put it, "The buying has come from a diverse range of investors."
As a result of their mandates, foreign mutual funds must continue to allocate their funds in China, and as a result, they are increasingly looking to invest in areas where the government is providing support, according to Mr Chen.
Investors sifting through state media and President Xi Jinping's speeches and books for policy clues discovered a standout focus on reducing greenhouse gas emissions - with broad goals for peak carbon emissions in 2030 and carbon neutrality by 2060 - as one of the most important policy priorities.
Consumer discretionary companies and industrials on the Chinese mainland have received support for pursuing similar broad objectives of increasing domestic demand and domestic production.
In terms of self sufficiency, there are (electric vehicles), renewables, and semiconductors. "We look at these sectors and see that they could very well continue to receive support," said Alex Wolf, head of investment strategy at JP Morgan Private Bank.
"Another one is the modernization of manufacturing," he added. In the five-year plan, the Chinese government expresses a strong desire to maintain manufacturing as a certain share of the economy...(and) even to increase it if possible.
In Conclusion
In the same vein as portfolio managers at Citi Private Bank and BNP Paribas Wealth Management, Wolf prefers mainland listings because they are less susceptible to regulatory scrutiny and because they have a more diverse composition than targets such as technology or Internet companies.
"Our equity strategists (believe that) over time, the MSCI China universe will gradually have a more balanced sector allocation, with a reduced weight for the Internet and a higher weight for sectors such as industrials and information technology," Morgan Stanley's chief Asia economist Chetan Ahya stated in a note published earlier this week.
