Banks with strong profit and dividend records are top buy picks, analysts recommend
[SINGAPORE] The latest flare-up in Sino-American trade tensions is reason for investors to shift allocation towards the relatively cheaper and defensive corners of the Chinese stock market, according to strategists.
Analysts at Citigroup are touting domestic yield plays as safer bets as the artificial intelligence-led bull run in Chinese equities confronts the risk of higher tariffs. Those at JPMorgan Chase recommend buying shares of banks with a good track record of earnings and dividend payouts.
“A style rotation will likely start in the Chinese market in the coming weeks,” Hao Hong, chief investment officer at Lotus Asset Management, wrote in a note on Monday (Oct 13). “The relative performance of growth sectors versus the value sectors is near its historical highs and will soon revert.”
The CSI 300 Growth Index has beaten its value counterpart by 25 percentage points so far this year, poised for the best annual outperformance in two decades, according to data compiled by Bloomberg.
Chinese stocks plunged on Monday as trade tensions took centre-stage after US President Donald Trump late last week threatened to slap an additional 100 per cent tariffs on Chinese goods. That was in response to Beijing’s unveiling of broad new curbs on its exports of rare earths and other critical minerals.
While Trump later signalled he is open to talks, the market’s reaction shows investors remain jittery.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Financials outperform
The benchmark CSI 300 Index ended Monday’s morning session down 1.8 per cent, but a sub-gauge of utilities fell only 0.2 per cent. A measure of financial shares slipped 0.8 per cent, with stocks of some large lenders faring even better. China Construction Bank Corp rose, and Industrial & Commercial Bank of China was down less than 0.5 per cent.
Macquarie Capital is advising investors to rotate out of momentum-driven winners into shares of firms positioned to benefit from China’s consumption stimulus.
“Investors should sell high-beta brokers, pharma and semiconductor stocks and shift to consumption stimulus plays like consumer discretionary,” strategists including Eugene Hsiao wrote in a note.
That said, some pockets of growth stocks remain attractive for investors, particularly those related to China’s localisation efforts.
Shares of Chinese chipmakers bucked the broader sell-off on Monday amid expectations that the trade spat will intensify Beijing’s focus on boosting self-reliance in the technology sector to reduce reliance on US imports. BLOOMBERG
