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Chinese traders hunt for winners of long-term reopening after fever


(Bloomberg) – As China’s reopening process begins to take shape, investor focus has increasingly shifted from wild bets on equities to longer-term games like consumer stocks and health care.

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Money managers are focusing on companies that will benefit from the economic recovery due to reopening rather than travel and catering companies whose shares have surged in the early days of the rally. love. Some are bracing for a full easing of Covid restrictions to take place in March, even if the journey towards that goal can be bumpy.

Hua Tong, a fund manager at Shenzhen Zhengyuan Investment Co, said: “As the economy’s trajectory is about to get back on track, it’s time to shift the focus away from jumpy stocks to changes. Short-term. have a longer-term view to find opportunities — and the biggest unrealized opportunity is in the consumer sector.”

The historic rally in November is being seen as a game changer for Chinese stocks after months of intense volatility due to prolonged lockdowns that many see as the biggest drag on the stock market. market. Investors are looking for potential purchases as Beijing’s gradual easing of restrictions combined with a property crisis that has turned China’s key metrics into performance indicators. worst in the world for most of this year.

Recent measures by authorities include allowing some low-risk patients to isolate at home and easing restrictions in select cities, with official Covid rhetoric also focus on a softer tone.

‘First shot’

“The reopening of commerce will be led by consumption and healthcare in the coming months,” said Li Changmin, a fund manager at Snowball Wealth. “The sudden reopening of Guangzhou, even with a high number of cases, fired the first shot and this could accelerate the end of Covid Zero.”

Li hopes a full reopening will take place before China’s annual parliamentary meetings in March. He said: “The return to normal life will mostly benefit those names. The blue-chip age has suffered a huge drop in valuation, while the downside of travel and airline stocks has mostly been priced in.

The CSI 300 Consumer Staples Index is trading at almost 22 times its one-year forward earnings, compared with an average of nearly 27 times over the past three years. Heavyweights like liquor maker Kweichow Moutai Co. and Inner Mongolian dairy product manufacturer Yili Industrial Group Co. are down about 40% from last year’s peak.

The first leg of the reopening of trading saw more volatile stocks take the lead. Stocks related to the travel, catering and pharmaceutical industries are among the main beneficiaries.

For example, Xi’an Tourism Company grew 37% in November while hot pot chain Haidilao International Holding Ltd. up 64% in Hong Kong. Shanghai Shenqi Pharmaceutical Investment Management Company surged as much as 100% in November on speculation that a drug manufactured by the company would be used to treat Covid patients.

Meanwhile, Moutai and Yili ended the month with an increase of about 18% and 14% respectively.

Sportswear, Cars

More broadly, the Hang Sang China Enterprises Index jumped 29% in Hong Kong in November, its highest level since 2003. China’s benchmark CSI 300 index jumped nearly 10%, its best performance since from July 2020. Since then, the recovery momentum has eased, with small measures changing over two sessions in December.

Paul Pong, managing director at Pegasus Fund Managers Ltd. backs consumer stocks like sportswear and auto manufacturers, which are expected to beat their peers as spending picks up. “The big tech companies that once lagged behind, like Alibaba and Tencent, will also perform better when they have high betas and directly benefit from the consumer recovery.”

To be sure, some still see room for a follow-up protest in the traditional group reopening of plays. Manishi Raychaudhuri, Asia equity strategist at BNP Paribas, says that stocks related to travel, restaurant chains, e-commerce, gaming in Macau and retail-focused REITs could do well. more profit.

“Other Asian markets, like Thailand, also offer interesting opportunities on this topic – through airports and hotel chain stocks,” he said.

READ: Korean cosmetics shares extend gains on hopes of China reopening

long game

All told, more and more investors are aiming to play the longer term although China’s exit from Covid Zero could be challenging.

“Reversing direction would be like walking on a tightrope, full of adjustments in both directions to find the most desired solution,” said Liu Xiaodong, partner at Shanghai Power Asset Management Co.

“This means that many reopening plays can be prone to overturning and eventually moving horizontally,” says Liu. “If anything, I think healthcare has the potential, no matter how the situation changes in the short term, people will need to be treated.”

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