Investors should take China ‘very seriously,’ fund manager says, naming a stock to start with
With all eyes on China right now, one fund manager is bullish on the country regardless of any “bazooka” stimulus measures, saying investors should be getting involved. Steven Glass, managing director and analyst at the Sydney-headquartered Pella Funds Management, said Chinese markets will continue to improve regardless of any huge stimulus announcements. Starting on Sept. 24, China announced a string of stimulus measures aimed at boosting China’s economy . Investors were underwhelmed Tuesday, however, when a National Development and Reform Commission briefing failed to announce any major new measures when markets reopened after the Golden Week holiday. After the stimulus announcements on Sept. 24, the mainland’s CSI 300 rallied almost 16% in its best week since 2008 . Year-to-date, the blue-chip index is up nearly 20%. Focus has now shifted to Saturday, when the country’s finance ministry is expected to hold a press conference on fiscal policy, amid high expectations of further stimulus. Glass, however, said incremental measures by the government were enough to increase investors’ confidence in the country and see continuous flows into the market. The main reason for China’s poor market performance over recent years, he said, was the government crackdown on corporates that began in 2020. It saw mainland China’s CSI 300 index fall for three straight years, ending 2023 down 11.4%. Meanwhile, research by HSBC showed that stocks in China and Hong Kong sold off $4.8 trillion in market capitalization between 2021 and April this year. But Glass noted that there hasn’t been any “negative” government initiatives in China since around September 2023. “People should be looking at China very seriously,” he told CNBC’s “Squawk Box Asia” last week. The fund manager oversees the Pella Global Generations Fund , a long-only equity fund, which invests in between 30-50 highly cash-flow generative businesses, with strong ESG credentials. His optimism on China is in stark contrast to the cautious stance of some other investors and analysts. Stephen Roach, for example, former chief economist at Morgan Stanley, warned investors against being too swept up in the China market rally . ‘Starting point’ For those looking to invest in China, Glass said a good “starting point” was Midea Group , which makes appliances and industrial robots. “It’s cheap, well managed and got a very strong balance sheet,” he said, adding that the company will benefit from “increased consumer expenditure … and if there’s an improvement in the real estate market.” Midea acquired German robotics supplier Kuka in 2016 which Glass sees as positive, given that industrial robots are a “very good place to invest … [as] key beneficiaries of AI.” Midea shares are listed on the Shenzhen stock exchange and are included in the Rayliant Quantamental China Equity ETF (2.9% weight). Midea also listed in Hong Kong on Sept. 17 in the bourse’s biggest debut since February 2021. Its Hong Kong-listed shares are up 54% since the listing. All 26 analysts covering the stock give it a buy or overweight rating at an average price target of 92.39 Hong Kong dollars ($11.89), according to FactSet data. This gives the stock around 9% potential upside. Investing in Chinese real estate Investors with a higher risk tolerance could consider Country Garden Services Holdings , Glass said, the property management arm of the real estate firm Country Garden. It spun out and listed on the Hong Kong stock exchange in June 2018 and Glass believes “it could do absolutely amazingly [and] could see a five to 10 bagger” (appreciate in value up to 10 times). The stock also trades in the U.S. as an American Depositary Receipt under the CTRGF ticker. Its Hong-Kong shares are relatively flat year-to-date. Of 19 analysts covering the stock, seven give it a buy or overweight rating, six have a hold call and six have a sell or underweight rating, according to FactSet data. Analysts’ average price target is 4.49 Hong Kong dollars, which gives the stock almost 30% potential downside from its current price around 6.40 Hong Kong dollars.
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