“The profitability of smartphone makers is expected to scale down due to a sluggish global demand,” Zhu said during a media briefing in Hong Kong yesterday. “Also, the rally of tech stocks last year has made a high valuation of some tech stocks. The combination of these two factors makes a less attractive investment opportunity within the space this year,” she added.
Zhu is a portfolio manager of the Blackrock’s China Fund. The fund invests 35.7% of its assets in financials and 33.43% in telecom, media and technology, according to FE data. Despite holding a third of its assets in technology stocks, the fund is slightly underweight the sector with respect to its benchmark, the MSCI China 10/40 Index. It remains selectively overweight in some US-listed Chinese tech stocks, Zhu said. The tech giants Tencent and Alibaba are the top two holdings in the fund.
The property sector was a big winner in China last year, thanks to better sales performance and a lift in net asset value among the domestic developers, Zhu noted, adding that it is not likely to repeat in 2018.
She said she expected the authorities to impose curbs on the overheating property market, which may negatively affect the sales performance of the developers this year.
However, there will be some investment opportunities among developers that acquired land a few years ago, own a larger land bank, and are able to borrow at a lower financing cost, said Zhu.
She said she was also positive on the developers that concentrate their business in the first-tier cities in the southern part of China, thanks to Beijing’s Greater Bay Area project, which aims to drive economic growth in the vicinity of Guangdong, Hong Kong and Macau.
In the financial sector, banks are likely to benefit from a higher net interest margin, following the upward interest rate trend, while insurers might benefit from a higher profitability of new products, Zhu said. The valuations of many stocks in this sector are lower than their historical averages, which makes them attractive.
Zhu’s geopolitical concerns centre on the relationship between US and China. “It is important to monitor the development of Donald Trump’s policy against China and Asia,” she said. “A trade war against China, or even military actions in the region will become the major risk to watch,” she said.
Three-year performance of the Blackrock China Fund vs category average and the MSCI China Index
Source: FE
