Want to cash in on China’s stimulus? Here’s what the pros expect next

November 11

Chinese markets are back in the spotlight after a slew of government stimulus measures over recent weeks. Friday’s news of a five-year 10 trillion Chinese yuan ($1.4 trillion) debt swap program disappointed investors, however, falling short of calls for more direct support for the economy. For many market participants — including Pella Funds’ Jordan Cvetanovski — this means taking a longer view when it comes to investing in the Asian powerhouse. “I think the right way of looking at what China’s up to, really, is to see it as a process,” he told CNBC’s “Street Signs Asia” on Monday. “The markets are always impatient. They want to see a big sugar high immediately, and they want to see a big bazooka … However, as we’ve discovered over many years, the Chinese government … does things in a more measured fashion.” Cvetanovski, Pella Funds’ founder, chief investment officer and portfolio manager, added that “more patient, longer-term investors would be rewarded by looking at the bigger picture.” His comments come as China’s Ministry of Finance signaled Friday that more fiscal support could come next year . It also flagged its near-term focus on addressing local government debt. Looking ahead, Paul Cavey, founder and economist at research house East Asia Econ, said there will be more stimulus measures to come, especially given the potential for a hike in tariffs by President-elect Donald Trump. Carey is expecting two types of policies: fiscal support to “resolve some of the excess inventories in the property market,” as well as measures that help promote new segments of growth to cope with any extra tariffs on exports to the U.S, he told CNBC’s “Squawk Box Asia” on Monday. Stocks to watch As investors ponder how to navigate the Chinese market, Bernstein said there are attractive opportunities in “growth and high volume stocks [aligned] with policy led rebound.” “Cheap valuations, declining equity risk premium, improving earnings support (Financials, Real Estate, Utilities, Healthcare, Tech, Materials showing signs of bottom in downgrades) and low positioning (GEM funds were -2.4% underweight China, 0.7% overweight India by Sept. end) still make Chinese equities attractive,” the investment bank’s analysts wrote in a Nov. 6 note. Among the bank’s outperform-rated stocks are tech giants Tencent and Meituan . The bank’s analysts describe Tencent as its “top ‘set and forget’ stock idea in the sector, especially as the company’s capital returns grow with earnings over time.” Meanwhile, they view shopping platform Meituan as “the fastest growing name in the China Internet sector in the next few years.” Bernstein has a target price of 540 Hong Kong dollars ($69.47) on Tencent and 220 Hong Kong dollars on Meituan — giving them potential upside of around 30% and 18% respectively. Both Tencent and Meituan trade on the Hong Kong Exchange and in the U.S. as American Depository Receipts (ADR) under the ticker TCEHY and MPNGY . — CNBC’s Evelyn Cheng and Michael Bloom contributed to this report.

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