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Despite US pressure, China tech still attractive

Chinese companies will increase technology R&D and AI investment despite US pressure on China's tech companies, according to Allianz GI.
Raymond Chan, Allianz GI

The MSCI China Index has fallen 13.75% since early May when President Trump reignited the trade dispute with China and turned up the heat on China’s technology companies.

However, the index is still up 4.85% for the year to date, according to FE data.

“If we don’t have much positive news for the Chinese market to perform, that would result in downside,” said Raymond Chan, chief investment officer for Asia-Pacific equities at Allianz GI, speaking at a Hong Kong media event.

“But the downside would probably be limited.”

Chan remains positive on China. He said that the domestic market continues to drive consumption and is a positive for the mainland’s economic growth. Another plus is the recent inclusion of A-shares on MSCI indices, which should drive foreign capital into China’s markets, he added.

“Given the trade concerns and the technology war between US and China, we believe China will continue to increase R&D and AI [artificial intelligence] investment in tech-related sectors to drive growth,” Chan said.

Moreover, China A-share valuations are recovering from historical lows. The onshore market is trading on a 1-year forward P/E ratio of 12, and its price-to book is 1.9 times.

Chan has managed the Allianz Asia Pacific Equity Fund since its inception in 2005.

According to the fund’s factsheet dated April 30, China represents the biggest overweight against the benchmark at 33.9% and information technology also gets an overweight (15.5%). Tencent and Alibaba are the funds two largest holdings, together comprising around 12% of the portfolio.

Allianz Asia Pacific Equity Fund vs benchmark and category average, 3 years

Source: FE. In US dollars.

Part of the Mark Allen Group.