A handful of big-name Chinese stocks are starting to emerge from a downbeat few quarters, making it a good time to buy ahead of next year, JPMorgan analysts said. China’s lackluster economic recovery this year disappointed many who had expected a far more robust rebound and government support. It’s unclear how much that will change next year. But businesses are starting to find a path forward. Third-quarter results for media and entertainment companies showed leading sector names have bolstered margins while cutting costs, JPM’s equity macro research team led by Wendy Liu said in a late November note. Just a year ago, revenue and market capitalization for the stocks were at record lows, the analysts said. Their overweight picks are Tencent, NetEase and Kuaishou. Those are all part of a selection of stocks that JPMorgan called “timely buys,” names for which “fundamentals and market capitalization [are] emerging from troughs.” No Alibaba Missing from the list is Alibaba. The investment firm still prints a price target of $125 for a hefty upside of more than 70% from Wednesday’s levels. But that’s after shares plunged in the last few weeks following news the company is scrapping plans for a highly anticipated cloud business IPO. And it’s increasingly apparent that Alibaba faces growing competition in China’s e-commerce market — seller of bargain-priced goods PDD is catching up in market capitalization. JPMorgan analysts still included Alibaba in its stock basket plays for themes such as artificial intelligence. When it comes to other “timely buys,” JPMorgan analysts like consumer electronics stocks Lenovo and Xiaomi. The consumer electronic sector’s cyclical downturn lasted for a longer-than-expected five straight quarters, the report said. Now revenue is starting to bottom out while market capitalization is starting to turn higher, the JPM analysis showed. Counterpoint Research also found that global smartphone sales in October broke a two-year decline , indicating consumers may be willing to shell out for electronics again. The JPMorgan China 2024 outlook even went so far to predict that the Federal Reserve’s long-awaited pivot and China’s gradual economic recovery mean it is time to shift away from a value investing strategy to a growth one. Growth over value Over the last two years, value has generally outperformed growth. China’s economic recovery will likely continue next year until the second half of 2025, the JPMorgan analysts said. “This mild cyclical upturn shall favor Growth more than Value on higher beta nature.” The remaining two big questions for Chinese stocks are sentiment around government policy and relations with the U.S. JPMorgan analysts said there’s “low likelihood of a bazooka-like stimulus” and expects the “third plenum” of top leaders to lay out a multi-year economic agenda will be held in January or February. That policy meeting has been widely expected this fall. But there’s been no formal announcement while winter approaches. Also filling up the calendar is the annual central economic work conference for setting year-ahead policy, typically held in the middle of December. “In terms of Chinese policy I don’t think there will be a huge change,” Jian Shi Cortesi, investment director and member of the global equity team at GAM Investments, told reporters at a briefing in late November. The firm is still keeping its overweight on China equities overall. She also doesn’t expect the U.S. presidential election next year to affect Chinese policy. The key driver in the bilateral relationship “is what the U.S. wants to do,” Cortesi said. “If the U.S. extends a hand, China will take it and shake it,” she said. “But if the U.S. becomes hostile on China, then China will retaliate.” At a high-level meeting in San Francisco, U.S. President Joe Biden and Chinese President Xi Jinping signaled last month an effort to keep relations from getting significantly worse. All the uncertainty, however, means that sentiment is going to play an outsized role in stock performance. “Overall I think [Chinese] corporate earnings is actually not too bad considering the economic challenges,” Liqian Ren, leader of quantitative investment at WisdomTree, said in a phone interview. “But their stock price has not improved as much, even for those companies that foreign investors can access. It’s because there’s been so [many] more negative headlines than the positive one.” “My view of investment is I still think China is a good hedge, but it’s going to be highly volatile and it’s only for the people who really have high conviction,” she said. “if people’s investment horizon is less than three years then it’s a very hard sell for them.” — CNBC’s Michael Bloom and Sheila Chiang contributed to this report.
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