Chinese stocks have become relatively attractive despite the coronavirus pandemic, unrest in Hong Kong, and the US-China trade war.
According to DWS APAC Chief Investment Officer Sean Taylor, this is because of the weak performance of Hong Kong indexes, such as a 9% decline in the Hang Seng Index.
He said this was due to political unrest, export dependences and its composition, with an overweight in finance, utility and real-estate stocks. The Hang Seng China Enterprises Index (HSCEI), which is strongly oriented to Chinese state-owned corporations, has not fared much better, in his opinion.
Taylor added “Profits were made elsewhere – for example in the Chinext Index, which specializes in young technology companies and mainly attracts Chinese retail investors.”
He noted the broad-based MSCI China Index also showed good performance, and benefited from the inclusion of a technology heavyweight that had previously only been listed in the United States.
Taylor said a third of MSCI’s market value is now accounted for by just two technology stocks – a trend not so dissimilar to that of the US equity market.
The more domestically oriented CSI 300 Index is also evolving to reflect structural changes in China. He pointed out “In 2010 the less industry-focused, "modern" sectors such as technology, telecommunications, pharmaceuticals and (online) retail accounted for only 20% of this index. Now that figure is twice as high.”
Taylor concluded by saying that China is ahead of other countries in managing the Covid-19 pandemic, and is currently the only major country where DWS expects to see economic growth this year.
Furthermore, the capital market and the structure of the economy have evolved significantly, so he considers Chinese equities to be much more attractive than in 2015 compared to other markets.
