Recent heightened Sino-US tensions are creating attractive entry points for Chinese stocks, according to Virginie Maisonneuve, global CIO for equity at Allianz GI.
“Generally, when situations are extreme, valuations will go lower than what the value of the company is. And this is when you do your bottom-up work,” she said
In early February, a Chinese-operated balloon was spotted in North American airspace and shot down by the US Air Force on the order of US President Joe Biden days later.
While the Chinese government claimed that it was a civilian airship that went off course, American and Canadian militaries said that the balloon was meant for surveillance purposes.
The incident has prompted US Secretary of State Antony Blinken to postpone his visit to China and stirred up market concern on whether a further conflict will take place between the two largest economies in the world.
“I don’t see a Sino-US conflict; I see a trade war organised around technology but I don’t see a direct confrontation or everyone will lose on that,” Maisonneuve said.
“If there is further market volatility, I would look at the stocks that I really like and if the valuations become too cheap, then I would buy them.”
Nonetheless, she believes geopolitical factors will play a bigger role in markets.
“Geopolitics is very hard for the market to take into account, because it is a top-down factor and it is not predictable,” said Maisonneuve.
“Frankly, in the past, we do not have many examples of geopolitical volatility over the past 10 to 15 years, but we anticipate there will be more over the next few years.”
Investment opportunities in China
When it comes to investing in China, Maisonneuve identified a few key areas that she prefers.
Firstly, as China has now loosened its Covid policies, domestic consumer activity is going to pick up in the first half of this year.
According to data from UBS, China retail sales in December last year were still 15% below pre-Covid levels, giving the retail consumption sector plenty of opportunity to play catch up.
She also favours innovative sectors such as pharmaceuticals, technology and biotech companies, which are going to benefit from policy tailwinds to counteract the effect of the Sino-US trade war.
Other sectors such as electric vehicles, supply chain and industrials are also expected to perform well as companies are going to increase their capital expenditure going forward.