Buyers flocking to stocks that are resilient to trade war
Gree Electric, Shanghai International Airport out of favor
Foreign investors are zeroing in on health-care and consumer stocks and ditching some old favorites, as they sift through the spoils of a $2 trillion selloff in China’s equity market.
Companies exposed to China’s growing middle class and resilient to external turbulence like the trade fight are popular picks for foreigners investing via trading links with Hong Kong. Liquor maker Kweichow Moutai Co., Han’s Laser Technology Industry Group Co. and Jiangsu Hengrui Medicine Co. are among those in demand, while Gree Electric Appliances Inc. and Shanghai International Airport Co. have fallen out of favor.
“Investors are focusing on defensive stocks, such as companies with strong earnings visibility and a high probability of delivering growth regardless of the short-term macro slowdown,” said Caroline Maurer, head of greater China equities at BNP Paribas Asset Management in Hong Kong. “White liquor and health-care names are likely to be in this category.”
Foreign investors bought liquor makers, sold appliance makers during rout
Chinese shares have been on a downward slide since hitting a more than two-year high in January, as investors worried about Beijing’s campaign to rein in leverage and its impact on liquidity, as well as corporate defaults, the slowing economy and an intensifying spat over trade and technology investment between China and the U.S.
The CSI 300 Index of Chinese large cap stocks has fallen 23 percent from its Jan. 24 high. Its consumer staples sub-gauge — which includes Moutai — is the third best performer on the index over that period, despite falling 14 percent. The health-care sector is the one bright spot, advancing 8.1 percent as a group. Jiangsu Hengrui has helped lead the charge with a 19 percent gain.
The outperformance of health-care stocks is a reflection of the growing middle class in China wanting better medical coverage, while steadily improving living standards have buoyed consumer stocks, said Tai Hui, chief market strategist at JPMorgan Asset Management in Hong Kong.
Stocks Seeing the Biggest Selling
According to Hong Kong Stock Exchange data, foreign investor ownership of Gree Electric via the trading links has fallen to 7.9 percent from 9.1 percent in January. It slipped to as low as 6.7 percent in late April, when the home appliance maker skipped a dividend payout for the first time in 11 years.
BNP’s Maurer said the selling reflects investor concern about China’s housing market.
While Shanghai International Airport remains popular among foreign investors — who hold almost a third of the company — that hasn’t stopped them from selling stock this year. Corrine Png, chief executive officer of Crucial Perspective Pte. in Singapore, wrote last month that it’s increasingly likely the escalating trade dispute spurs China to impose curbs on outbound tourism to the U.S.
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