‘Really, really cheap’: Pros name 4 under-the-radar stocks to play a China turnaround
Declining foreign investment and a prolonged property slump are just some of the issues that have put pressure on the Chinese economy — and stock market. However, things could be about to turn around for the Asian powerhouse, which left behind months of deflation in February with a 0.7% year-on-year rise in consumer prices . Factory activity in China also expanded for a third-straight month in January. The stock market too has been picking up, with the Shanghai Composite Index — which hit a five-year low in early February — gaining over 6% in the past month to cross 3,000. One portfolio manager says these developments, which follow a raft of stimulus measures from the government , make China an appealing destination for investors once more. “China has been a lot more fun this year than it had been until now,” Kamil Dimmich, partner and portfolio manager at North of South Capital, told CNBC’s ” Squawk Box Asia ” on Monday. “We have been digging around for value. We’re still relatively underweight China, but we’ve been reducing that underweight [as] some of the stocks there have become really, really cheap.” He said it could be time to start building a positive case for China, but “it’s maybe not quite time to get very, very bullish yet.” China Market Research Group’s Shaun Rein agrees. “Let’s be clear, China’s economy is weak, but it’s not that weak,” the founder and managing director of the group told CNBC’s “Squawk Box Europe” on Monday. “If you’re a multinational, if you’re looking to drive growth over the next three to five years, the next China is China. It’s not India, India is only a sixth of the GDP of China. It’s not Vietnam. These are small markets. So I actually think investors should be looking long-term at China again, it’s definitely investable.” He acknowledged some short-term risks, “because consumers are nervous about the economy still, they are going to be trading down.” However, he said he expected spending within sectors including health and wellness to continue, picking footwear brands Salomon and Arc’teryx (both owned by Finnish retailer Amer Sports , listed on the New York Stock Exchange) as having good exposure to the Chinese market. Stock picks When selecting stocks in China, Dimmich said he likes “companies that have some sort of pricing power that typically comes with a strong market position [and] high barriers to entry.” “We own a lot of consumer-related stocks, including the internet retailers, of course, which have become real value stocks for us,” he added. Two perhaps lesser-known companies that stand out to him are Xinyi Glass and Fufeng . Fufeng Group manufactures products such as flavor enhancers, fertilizers and starch. Its shares are broadly flat over the last 12 months, but have risen 17% over the last three months. Meanwhile, shares in glass manufacturer Xinyi are down over 32% over the last 12 months, but are 11% higher over a three-month timeframe. The company manufactures glass products for construction companies and automobile giants like Ford and General Motors. “There’s really one other competitor that matters and a lot of smaller ones. Thanks to their size, they can remain profitable, even with relatively low glass prices,” Dimmich said, adding that the company continues to pay “very high” dividends. Both Fufeng and Xinyi Glass are traded on the Hong Kong Stock Exchange. Shares in Fufeng are held in the iShares MSCI China Small-Cap ETF , while Xinyi Glass shares are held in the Franklin FTSE Hong Kong ETF and SPDR S & P China ETF .
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